Student Loan Lawsuits and Challenges

People with federal student loan debt can now apply for forgiveness of a portion of their loans. The White House has announced the application form is now available online.

It's easy, it's fast," President Biden said in announcing the launch. "This is a game changer for millions of Americans to get moving."

The debt relief plan will wipe away up to $10,000 in federal student loan debt for borrowers who earn less than $125,000 per year. It will eliminate up to $20,000 for those borrowers who received Pell Grants.

In making the announcement, Biden noted that it only takes about five minutes to fill out the application. Required information includes the applicant’s name, date of birth, and Social Security number. The form is provided in both English and Spanish on desktop and mobile sites. It will be open through Dec. 31, 2023.

According to White House estimates, more than 40 million Americans may be eligible for some student loan debt forgiveness. Total student loan debt is estimated to be more than $1.5 trillion, with some economists saying it hurts the economy because it limits what young consumers can spend on other things.

Warning about scams

In advance of launching the forgiveness application, the White House warned borrowers to be vigilant against an expected barrage of student loan debt forgiveness scams. Signs of a scam include:

• Offering to assist borrowers for an upfront fee. There is NO charge to participate in the debt forgiveness program.

• Someone contacts a borrower and claims to be from the government. Government employees will not contact borrowers until AFTER they have applied.

• Someone offering help to secure loan forgiveness creates a sense of urgency, claiming the borrower will miss out if they don’t act immediately. 

• A website or email claiming to be affiliated with the program that DOES NOT have a .gov URL is not legitimate.

Amid a court challenge to his plan to forgive some student loan debt, President Biden has tweaked his proposal, reducing the number of borrowers who will qualify.

In August Biden announced the U.S. Department of Education (ED) would forgive $10,000 in federal student loans. 

Included in that group of borrowers were those who held Federal Family Education Loans (FFEL), issued by private banks but guaranteed by the U.S. government. 

Under current terms, those loans cannot be consolidated. But when the loan forgiveness program was announced, the Department of Education said FFEL borrowers could consolidate their loans and qualify for debt relief.

Altered guidance

Now the administration has changed its guidance. In a statement on the ED website, officials said: “As of Sept. 29, 2022, borrowers with federal student loans not held by ED cannot obtain one-time debt relief by consolidating those loans into Direct Loans."

"Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible, and this will allow us to achieve that goal while we continue to explore additional legally available options to provide relief to borrowers with privately owned FFEL loans," a spokesman for the Education Department told Reuters.

The move coincides with lawsuits filed in several states that challenge the legality of the president’s loan forgiveness program. The suits specifically challenge the provision that allows FFEL borrowers to consolidate their loans into federal Direct Loans, which are eligible for the program.

As of the last official count, about 4 million student loan borrowers hold FFEL loans. Of those, the administration estimates the change will affect about 770,000 people.

In a highly-anticipated move, President Biden has announced plans to issue an executive order forgiving a portion of federal student loan debt for millions of borrowers.

The announcement comes a week before the moratorium on loan payments, in effect since early in the pandemic, is set to expire.

Under the administration’s plan, the Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. 

Borrowers are eligible for this relief if their individual income is less than $125,000 – $250,000 for married couples. Meanwhile, the moratorium on loan payments that would have expired Aug. 31 has been extended to Dec. 31, 2022.

In explaining the move, the White House noted that nearly one-third of borrowers have debt but no degree, according to an analysis by the Department of Education. Many of these students either dropped out or could not complete their degree because the cost of attendance was too high. 

Could help borrowers  in default

The White House also said about 16% of borrowers are in default, including nearly a third of senior citizens with student debt. Federal student loan debt cannot be discharged through bankruptcy so defaulting on a loan usually results in the government garnishing a borrower’s wages or lowering a borrower’s credit score. 

“We must also remember that, while debt cancellation is good news for those who currently hold student loans, it does not solve the underlying problems that caused the student debt crisis in the first place: the exorbitant cost of college, the declining purchasing power of the Federal Pell Grant, and our flawed student loan system,” said Rep. Bobby Scott (D-Va.), chairman of the House Education and Labor Committee.

The forgiveness announcement is likely to be politically controversial, coming a little more than two months before the midterm elections. It may also be challenged in court. Biden has long favored a student loan debt forgiveness program but said it should be done through the legislative process, not with an executive order.

For more than two years, people who have taken out federal student loans have been able to suspend payments. Congress placed a moratorium on payments as a way to relieve some of the financial burdens created by the COVID-19 pandemic.

After being extended a couple of times, the payment pause is scheduled to end on August 31, unless President Biden extends it again. A survey of borrowers found most are dreading a resumption of payments. In fact, only 14% said they can afford the payments with no issues when the forbearance period ends.

The survey, conducted by ScoreSense, also found that 42% of respondents are worried about working the resumed payments back into their household budgets.

Eighteen percent of survey respondents said they will need to overhaul their budgets or rely on family to help them resume loan payments. About 25% of borrowers between the ages of 18-34 are counting on help from family members to help with their student loans.

What changed?

What changed between March 2020 and now? During the payment pause, nearly 25% of respondents said they used the money they would ordinarily pay to student loan servicers to pay off other debts and loans. Some said they invested the money in the stock market.

"Unfortunately, we're seeing the perfect storm of economic stress on households where higher prices, interest rates, property assessments, and more is making it very difficult for many people to live within their means,” said Carlos Medina, senior vice president at One Technologies, LLC., which offers ScoreSense. “For many student loan holders, making payments in 2020 was much easier than it will be when they resume." 

Forgiveness is still on the table

Some Democrats in Congress are pressing Biden to forgive a portion of student loan debt, something the president has suggested should be done through Congressional legislation. Currently, Democrats lack the votes to do that.

However, a new poll conducted for CNBC points to possible unintended consequences of wiping away a portion of student loan debt. The survey found that 59% of Americans expressed concern that student loan forgiveness would make inflation worse.

There are also political considerations that could cause the administration to hesitate. While student loan borrowers would no doubt applaud the move, other taxpayers who did not attend college and have no student loan debt might not think it is such a good idea.

Why? Because, according to the Federal Reserve, about 44 million borrowers owe a collective $1.7 trillion in federal student loan debt – money that could possibly be used to fund other initiatives or applied toward something that has more universal benefit.

Earlier this week, the U.S. Department of Education (DOE) announced that it will be forgiving nearly $4 billion in student loan debt for students who had previously attended ITT Tech. Loan forgiveness is available to over 208,000 students who attended the for-profit university from January 2005, through September 2016. 

“It is time for student borrowers to stop shouldering the burden from ITT’s years of lies and false promises,” said Miguel Cardona, the U.S. Secretary of Education. “The evidence shows that for years, ITT’s leaders intentionally misled students about the quality of their programs in order to profit off federal student loan programs, with no regard for the hardship this would cause. 

While some former students may have already completed Borrower Defense Claims against ITT Tech to have their student debt forgiven, the DOE says this won’t be necessary to receive payment moving forward. No further action is required, and all eligible students will have their loans erased. 

Students have been defrauded for years

This isn’t the first time the DOE has issued a loan forgiveness statement to former ITT Tech students. After the institution closed its doors in 2016 due to being cut off from federal funding, those who had attended the school but never received a degree had their debt erased.

A lengthy investigation into the school revealed that students had been lied to about how their money was used, how much money they’d make after graduating, and how many of their credits would transfer to other schools. 

“ITT defrauded hundreds of thousands of students, as we identified when I was the director of the Consumer Financial Protection Bureau,” said Richard Cordray, the Federal Student Aid Chief at the time. “By delivering the loan relief students deserve, we are giving them the opportunity to resume their educational journey without the unfair burden of student debt they are carrying from a dishonest institution.” 

According to Cardona, the goal moving forward is to make students feel safe and secure when applying to schools and borrowing money. 

“The Biden-Harris Administration will continue to stand up for borrowers who’ve been cheated by their colleges, while working to strengthen oversight and enforcement to protect today’s students from similar deception and abuse,” he said. 

Student loan forgiveness deadline approaching

Federal student loans have been on pause since the beginning of the COVID-19 pandemic in March 2020. After more than two years, consumers only have to wait a few more weeks to learn President Biden’s latest decision regarding loan forgiveness.

The President is scheduled to make an announcement about federal loans on August 31, which has experts speculating about another loan pause or substantial loan forgiveness efforts. 

Student loan borrowers are preparing to resume payments after August 31, the date that a moratorium on payments is set to expire. But the Biden administration is dropping clues that another extension of the moratorium could be in the works.

With the scheduled resumption of payments about a month away, student loan servicers need time to prepare bills and resume their collection efforts. But the Wall Street Journal reports that loan servicers have been told to stand down.

Scott Buchannon, who heads the Student Loan Servicing Alliance, says the U.S. Department of Education has told loan servicers not to communicate with borrowers yet. That’s leading to speculation that the White House plans to either extend the pause on payments or even forgive a portion of the loans.

“The situation is that we’re almost 30 days away from the planned resumption and the department has been telling servicers to hold off on resumption communications for the last few months,” Buchanan told the Journal. “Maybe the department expects that the White House will yet again kick the can down the road.”

Resumption of payments may present challenges

Loan servicers have contracts with the Department of Education to manage the repayment of federal student loans. Under normal circumstances, they communicate with borrowers about how much they owe and when and where to send payments. 

Early in the COVID-19 pandemic, when millions of people lost their jobs, student loan payments were suspended as part of one of the pandemic’s many economic relief programs. About 45 million people in the U.S. hold student loan debt. According to the New York Federal Reserve, 67% of student loan debt is owed by people under 40.

That age group is the top household formation demographic, but many have struggled to purchase homes because of student loan debt, which currently totals more than $1.5 trillion.

In March, the New York Fed issued a report warning that it expects a rise in student loan delinquencies whenever the moratorium expires. It noted that very few federal student loan borrowers made voluntary payments during the moratorium. It also said people with private student loans, which were not covered by the moratorium, have struggled to make payments.

Some in Congress, led by Sen. Elizabeth Warren (D-Mass.), have pushed the White House to forgive a large portion of student loan debt.

The Federal Trade Commission (FTC) is reminding student loan borrowers that they have until October 31 to submit an application for the Public Service Loan Forgiveness (PSLF) Limited Waiver. The waiver has already proven its worth to thousands of student loan borrowers who have used it to get closer to total loan forgiveness. 

The FTC says there are two groups that the waiver benefits the most: (1) people who have Federal Direct Loans or can consolidate other types of federal student loans into a Direct Loan by October 31; and (2) those who have a work history with qualifying public service employers.

Until that October 31 deadline, securing a waiver gives borrowers credit for repayment periods that previously wouldn’t have counted. Those would include the following times:

• When a borrower didn’t make a payment

• When a borrower didn’t make a payment on time

• When a borrower didn't pay the full amount due 

• When a borrower wasn't on a qualifying repayment plan

The steps to take advantage of the waiver

Here’s the short version of how consumers can take advantage of the waiver:

• Log into the borrower’s Federal Student Aid account. The borrower should use their Federal Student Aid ID to access Studentaid.gov and complete the PSLF Limited Waiver requirements.

• Submit the PSLF form. Consumers can use the PSLF Help Tool to verify the current and past employment that they want credit for and submit the PSLF form.

• Confirm (or consolidate into) Direct Loans. The waiver only applies to Direct Loans, so borrowers need to consolidate their existing federal loans by October 31, 2022. The process is free through studentaid.gov. If someone is unsure about what types of loans they have, all they have to do is take a look at their FSA Aid Summary.

If there are questions that the instructions for those steps don’t answer, borrowers can go to StudentAid.gov's comprehensive list of FAQs to help find the answers they’re looking for.

The Federal Reserve has raised its overnight lending rate by 0.75%, the largest single increase since 2008 and the latest move to try to contain rising inflation.

The rate is still low by historical comparison, and more increases are anticipated at future Fed meetings between now and the end of the year. The federal funds rate is not paid directly by consumers, though it influences the interest rates on several types of consumer loans.

The Fed rate hike will increase the interest rate banks pay when they borrow money from the Federal Reserve. After a Fed rate hike banks usually raise their prime rate – the interest rate they offer their best customers.

That filters down to the consumer level in several different ways. The rate on auto loans will usually go up to reflect the increase, for example.

Higher credit card rates

The interest rate on credit cards, already near a record high, will also go up as a result. The interest rate on personal loans can also be expected to rise. ConsumerAffairs has listed other factors that influence the interest rate on personal loans.

The federal funds rate does not directly affect mortgage rates, which tend to move with the yield on the Treasury Department’s 10-year bond. That yield has been rising because of inflation and in anticipation of the Fed’s action.

Holden Lewis, home and mortgage specialist at NerdWallet, says the mortgage market sometimes moves ahead of any action taken by the Federal Reserve.

“Mortgage rates tend to go up and down in anticipation of Fed rate moves, which is a way of saying that the Fed increase was already ‘baked into’ mortgage rates,” Lewis told ConsumerAffairs. “In other words, mortgage rates are more likely to go up or down before Fed meetings than after Fed meetings. Over the next week or two, we probably won't see big movements in mortgage rates like we did last week.”

Mortgage rates are now over 6%

This week saw a major move in interest rates, with the average interest rate on a 30-year fixed-rate mortgage rising to more than 6%, a major blow to people shopping for a home. But the rate can be higher or lower.

ConsumerAffairs has published a breakdown of the factors affecting an individual's mortgage rate. They include credit score and the amount of the down payment.

“Home sales are slowing dramatically because of skyrocketing mortgage rates,” Lewis said. "The decreased demand means we'll soon see a slowdown in home price increases.”

Meanwhile, consumers looking for a home will have to shop carefully for a mortgage. ConsumerAffairs has listed the latest mortgage rates here.

Since the middle of 2021, users of Buy Now, Pay Later (BNPL) apps have been falling behind on payments for their purchases. That’s obviously not good for consumers, but it is also taking a toll on the companies that are making these short-term loans.

The Wall Street Journal reports that BNPL companies like Affirm, Afterpay, and Zip are having to adjust because of missed payments and rising interest costs.

“We are putting a real focus on sustainable growth, strong unit economics and, critically, accelerating our pathway to profitability,” Zip co-founder Peter Gray told the Journal.

Alternative to credit cards

BNPL was all the rage at the beginning of the pandemic. The system allows consumers to make a purchase with a down payment and then two or three more equal payments every two weeks to complete the purchase.

Many consumers prefer the system because they aren’t adding to high-interest credit card balances that never seem to get paid off. But sometime in 2021, BNPL companies started sending out late payment notices.

In September, Credit Karma released research showing that 44% of Americans had used a BNPL plan. Of those consumers, 34% said they have fallen behind on payments.

Those missed payments have had significant consequences for consumers. Of those who admitted to having missed at least one payment, 72% said they believe their credit score declined as a result. Nearly a third said they experienced “significant” declines in their credit score.

Annie Millerbernd, one of Nerdwallet’s financial experts, says many consumers are under the mistaken belief that they’re getting a deal. Actually, it’s just a different financing plan.

“You only have to pay for a quarter of the price tag at checkout, but the actual cost isn’t lowered at all,” Millerbernd told ConsumerAffairs. "More payments will follow, usually in two-week increments, and not having a plan to make those payments can get you off track.”

That appears to be what’s happening. If a consumer goes shopping and makes three BNPL purchases, they may be able to handle the three initial down payments. However, they will be on the hook for additional payments over the next six weeks.

Instant gratification

Claudia Valladares, a financial advisor at Kovar Wealth Management, says BNPL plays on consumers’ appetite for instant gratification. If not properly managed, it can have the same result as running up credit card debt.

“The consumer doesn't realize those ‘small’ monthly payments can quickly throw off their monthly budget,” Valladares told us. "[Spending] $50 here, $35 there will add up! But as I mentioned, our generation wants things now so we don't think through the financial consequences at the time of the purchase.”

Millerbernd advises consumers to know their budget before making a BNPL purchase and to stick to it. Valladares says consumers should probably wait until they can pay the cost of the item entirely before making the purchase.

In March, a coalition of 77 consumer groups asked the Consumer Financial Protection Bureau to provide oversight and regulation of these financial products. The letter warned that BNPL is contributing to an explosion in consumer debt.

“BNPL products have largely evaded oversight by federal and state regulators,” the groups stated. “Although these products could have a place in meeting consumer needs if they operate as promised, they pose a risk to consumers and should be covered by basic consumer protections.” 

The U.S. Department of Education is wiping the slate clean for 560,000 students who borrowed money to attend Corinthian College. The agency announced that it is discharging all those students' remaining federal student loans, an amount that equates to $5.8 billion.

The Department said the discharge will include everyone, even borrowers who have not yet applied for a borrower defense discharge. The discharge will be done automatically without any additional action from borrowers.

Addressing a longstanding problem

It took nearly three administrations to make this happen, but the Corinthian students have the Biden-Harris White House to thank for their loan discharges. Officials have cited an ongoing commitment to helping student loan borrowers get the relief they are entitled to. With the Corinthian action on the books, the administration has approved $25 billion in loan relief. 

Bringing Corinthian to justice has been a personal crusade for Vice-President Harris. She sued the institution when she was the attorney general of California in 2013, claiming that the for-profit college purposely misrepresented its job placement rates and was engaging in deceptive and false advertising and recruitment. 

"As of today, every student deceived, defrauded, and driven into debt by Corinthian Colleges can rest assured that the Biden-Harris administration has their back and will discharge their federal student loans," said U.S. Secretary of Education Miguel Cardona. 

"For far too long, Corinthian engaged in the wholesale financial exploitation of students, misleading them into taking on more and more debt to pay for promises they would never keep. While our actions today will relieve Corinthian Colleges' victims of their burdens, the Department of Education is actively ramping up oversight to better protect today's students from tactics and make sure that for-profit institutions – and the corporations that own them – never again get away with such abuse."

The Department says it’s not finished

The Department of Education made it clear that its efforts to clean up the whole student loan mess doesn’t stop here. Last week, it announced a revamp of its student loan program in hopes of getting students and loan borrowers a full slate of benefits, including loan discharges.

If it sticks, the promises the Department makes could forever change the student loan business -- from making student loans more affordable to preventing a future debt crisis by holding colleges liable for leaving students with mountains of debt and without good jobs.

The Department also recently announced fixes to longstanding problems with income-driven repayment that will help thousands of borrowers receive forgiveness through that program, as well as 40,000 borrowers who receive Public Service Loan Forgiveness (PSLF).

Chalk up another move in the right direction for student loans. In hopes of providing federal student loan borrowers with a 21st-century customer experience, the Department of Education’s (DOE) Federal Student Aid (FSA) office has announced that it is building out a long-term loan servicing solution called Unified Servicing and Data Solution (USDS).

The DOE says it has high expectations for loan servicers going forward, including hitting two key objectives – reducing borrower delinquency and default.

Servicers have little more than a year and a half to get their act together, as the current loan servicing contracts are set to expire in December 2023. As it stands now, loan servicers support borrowers through their time in school and then as they repay their loans. The rub is that each servicer does its own thing – they each have their own website, contact center, staff training protocols, and borrower outreach programs. 

In the DOE’s eyes, the whole system is a can of worms that confuses borrowers. The agency said this fragmented approach has created several issues for the FSA, as well as customers and partners. 

“Frankly, the quality of work has not always met our standards,” said FSA COO Richard Cordray. “Borrowers are understandably frustrated when they receive inconsistent information about something as important as their student loans. Too often, borrowers miss out on available repayment options, and millions have defaulted as a result. More than 35 million borrowers with federally managed student loans are counting on us to help them achieve their life goals through higher education.”

What borrowers can expect

The USDS’ pecking order is pretty straightforward. The first thing it will do is replace the legacy servicing contracts for Direct Loans and federally managed Federal Family Education Loan (FFEL) Program loans with these goals as its target:

• Providing all federally managed borrowers with complete account management capabilities on StudentAid.gov;

• Reducing the disruption of account transfers; and

• Increasing servicer accountability to reduce loan delinquencies and defaults and other customer service benchmarks through clear, measurable service-level agreements.

FSA officials said they have already taken a couple of important steps to implement the next generation of loan servicing. One is the Next Gen FSA initiative, which is designed to check off the modernization goal.

Another is making it easier for borrowers to find what they’re looking for in one place. To that end, the agency says it continues to refine its Digital and Customer Care (DCC) platforms, which include the StudentAid.gov website and a data platform called the Enterprise Data Management and Analytics Platform Services.

The agency said the clock has already started ticking and hopes to have everything in place within five years of the go-live date. In the meantime, borrowers should see some incremental improvements. Officials plan to enhance servicing functionality through a single FSA-branded interface, by building out a servicing data repository to improve the account transfer process, and by enhancing cybersecurity.

Just how serious is President Biden about student loan debt? He says he's thinking about forgiving a chunk of what borrowers have taken on to get an education, but not to the tune of $50,000 per borrower like some of his fellow Democrats have been urging him to do.

"I am considering dealing with some debt reduction," Biden said on Thursday in response to a question raised at a White House briefing. "I am not considering $50,000 debt reduction. But I'm in the process of taking a hard look at whether or not there will be additional debt forgiveness."

The president didn’t leave it at that, though. He said he would have a complete answer to that question sometime in the "next couple of weeks."

So, where did the $50,000 forgiveness figure come from? Hoping to help grease the possibilities for Democrats in the upcoming midterm elections, Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) belabored the point, asking the president to up the ante and cancel $50,000 in student loan debt.

Finding a solution that works for everyone

There’s a fine line between being proactive and being overly generous, and Biden is trying to find it with the student loan issue. During his run for the Oval Office, he vowed that he would erase $10,000 in student loan debt and challenged Congress to take action.

Once he got into the White House, advisors stepped in and cautioned that the president could face legal challenges if he spread the student debt cancellation too far. Biden asked his team to give him the best options, and the answer he promised soon should tell us where the sweet spot is in that regard. 

Biden has to be careful not to set any expectations for future student loan borrowers, suggests Michael Heberling at the American Institute for Economic Research. "Will this really be just a 'one-time' gift? Doubtful!," he said. 

"The students who follow in the years to come will borrow with the understanding that their $10,000 relief will be there as well. After all, it’s only fair. This situation highlights Planer’s Rule (Similar to Murphy’s Law): An exception granted becomes a right expected the next time it is requested."

How about another extension?

The nudge to move the student loan issue forward also came up at a closed door meeting with the Congressional Hispanic Caucus earlier in the week. Among the concerns presented at the meeting, Congressman Tony Cárdenas (D-CA) asked the President to address student loan debt.

Cárdenas said he asked Biden to extend the moratorium past its current Aug. 31 expiration date. “Well, Tony, I’ve extended it every time,” the president responded. Pushing Biden a little harder, Cárdenas then asked the president for another favor – issue an executive order to alleviate at least $10,000 in student loan debts per person. 

Cárdenas emphasized that the situation is particularly burdensome with the Latino community. He told Biden that Latinos in the U.S. who are still trying to pay off student debt aren’t getting very far. Cárdenas said that despite their efforts, Latinos have more than 80% of their bill due after more than a dozen years.

The college application deadline is closing in, and high school seniors are making their final decision on where to attend. But a sobering new survey suggests that applicants should think long and hard about how they will pay for their education.

In a survey conducted for Givling, a crowdfunding trivia game that helps users eliminate debt, 63% of people who attended college said they regret taking out student loans. The survey showed that nearly half of the respondents paid their student loans for 10 years or longer.

Nearly 25% reported that their current student loan balance is more than $70,000. Asked if they would do it again, 27% of respondents said the return on investment isn’t enough to justify their debt.

"The student debt crisis has surged 144% over the past decade, forcing 45 million Americans to shoulder more than $1.5 trillion in loans," said Laurie Farros, president of Givling. "While programs like PSLF (public service loan forgiveness) certainly help, unfortunately they don't go far enough.”

While elite schools tend to be the most expensive, the Wall Street Journal reports that getting into one of them has never been harder. For example, Harvard received a record 61,220 applications for entry this fall and has accepted just 1,954.

Is where you go to school important?

Getting a good job usually requires a bachelor’s degree, but it’s not clear whether getting a degree from an expensive college provides much of an advantage. The majority of business leaders who recently responded to a Gallup poll said it was not very important or not at all important where the candidate went to college.  

What students major in may also be less important than many students think. The same poll found that only 28% of business leaders thought a candidate’s college major was very important.

This suggests that students who are planning to attend college should give a higher priority to how much the education will cost. In the last three decades, the cost of a college education has risen much faster than the rate of inflation. 

According to Investopedia, the average college student has over $40,000 in student loan debt.

Less than two weeks after the Biden administration extended the suspension of student loan repayments, the Department of Education announced that it is also tackling the issue by taking actions to fix the widespread failures in the student loan programs.

Included in those actions are steps that will bring borrowers closer to public service loan and income-driven repayment (IDR) forgiveness by addressing “historical failures” in how federal student loan programs have been managed. 

The first step will make some 40,000 borrowers happy. The Federal Student Aid (FSA) estimates that these changes will bring about immediate debt cancellation for at least that many borrowers under the Public Service Loan Forgiveness (PSLF) Program. The agency said several thousand borrowers with older loans are also on its list to receive forgiveness through IDR and that upwards of three million borrowers will receive at least three years of additional credit toward IDR forgiveness.

“Student loans were never meant to be a life sentence, but it’s certainly felt that way for borrowers locked out of debt relief they’re eligible for,” said U.S. Secretary of Education Miguel Cardona.

“Today, the Department of Education will begin to remedy years of administrative failures that effectively denied the promise of loan forgiveness to certain borrowers enrolled in IDR plans. These actions once again demonstrate the Biden-Harris administration’s commitment to delivering meaningful debt relief and ensuring federal student loan programs are administered fairly and effectively.”

The new agenda

Going forward, Cardona’s team will work on three primary initiatives:

• Ending “forbearance steering”

• Tracking progress toward IDR forgiveness

• Tackling student debt

To end “forbearance steering,” the DOE will require that borrowers who are having trouble making their loan payments get “clear and accurate information” from servicers about their options for staying out of delinquency. They will also be informed about any financial ramifications of choosing short-term options like forbearance. 

To improve the tracking of IDR forgiveness, the agency said its research found “significant flaws” that indicate borrowers are missing out on progress toward forgiveness, which most are entitled to after 20 years of payments. Things won’t start to gel on repairing this issue until 2023, but the FSA will begin displaying IDR payment counts on StudentAid.gov at that point so borrowers can view their progress after logging into their accounts. 

The agency indicated that it will remain committed to making student loan relief programs work for everyone.

“Efforts to revise IDR regulations will produce substantially more affordable monthly payments for millions of borrowers,” the DOE said in its announcement. “Today’s actions complement steps the Administration has already taken within its first year to cancel more than $17 billion in debt for 725,000 borrowers in addition to extending the student loan payment pause, saving 41 million borrowers billions of dollars in payments each month.” 

The Federal Trade Commission (FTC) says its years-long review of DeVry University continues to benefit consumers. The latest good news comes from the Department of Education, which will forgive $71.7 million in student loans for students deceived by the for-profit university.

On top of deception, DeVry had earlier been charged with unlawful business practices and not adequately preparing students for the high-tech jobs it cited in its pitches.

“Students deceived by DeVry should not be drowning in debt, and I’m pleased to see the Department of Education taking action to right this injustice,” said Samuel Levine, Director of FTC’s Bureau of Consumer Protection.

“It also sends a strong message to for-profit schools that luring students with fraudulent claims will not be tolerated. The FTC looks forward to continuing its coordination efforts and partnership with the Department of Education.”

DeVry had earlier been forced to pay $49.4 million to the FTC for partial refunds to some students and $50.6 million in relief from debt owed to the college. The FTC sent 173,000 refund checks to students in compensation for DeVry’s allegedly misleading ads, and it mailed an additional 128,875 checks totaling more than $9.4 million in 2019 to people who cashed their first check.

Where DeVry went wrong

According to the original 2016 FTC complaint, DeVry “deceptively advertised” that 90% of its graduates who sought employment actually landed jobs in their field of study within six months of graduation. Unfortunately for DeVry, it didn’t stop there.

The FTC also claimed that DeVry misrepresented that its graduates had 15% higher incomes within a year of graduation than the graduates of all other colleges or universities.

The FTC says any student who went to DeVry and feels defrauded by its actions can still submit a claim for loan forgiveness if they haven't received a refund. To do that, all they need to do is fill out the necessary forms on the Department of Education’s Borrower Defense Loan Discharge informational page.

The Consumer Financial Protection Bureau (CFPB) says it will begin to more closely scrutinize the procedures that post-secondary schools, such as for-profit colleges, use to extend private loans directly to students.

Going forward, the CFPB says its new procedures will take a hard look at several aspects of the student loan process, including placing enrollment restrictions on applicants, withholding transcripts, improperly accelerating payments, failing to issue refunds, and maintaining improper lending relationships.

The agency’s effort is another layer of protection that the U.S. is affording student loan borrowers. Just last week, Navient – one of the largest student loan lenders in the U.S. – came to an agreement with 39 state attorneys general over allegations that it wrongly led borrowers into taking on predatory and high-cost loans. 

“Schools that offer students loans to attend their classes have a lot of power over their students’ education and financial future,” said CFPB Director Rohit Chopra. “It’s time to open up the books on institutional student lending to ensure all students with private student loans are not harmed by illegal practices.”

What’s the biggest rub for the CFPB? The agency stated that many of the loans it's taking a harder look at have a potential for abuse because they are made outside the supervision of the Department of Education, with many being connected to banks, non-profits, nonbanks, credit unions, state-affiliated organizations, for-profit schools, and non-profit schools. Officials pointed to past abuses at schools like Corinthian Colleges and ITT Tech as cases in which students were subjected to high-interest rates and strong-arm debt collection practices. 

What student loan borrowers can expect

With Congress’ backing, the CFPB now has supervisory authority over entities that originate private education loans, including institutional loans. In addition to looking at general lending issues, CFPB examiners will be looking at the following:  

• Placing enrollment restrictions: Students who are late on their loan payments may be restricted from enrolling in or attending classes, which could delay their graduation and prevent them from finding employment.

• Withholding transcripts: When a school withholds academic transcripts from students who owe the school money, this prevents them from using their transcripts to demonstrate their education levels in the job market.

• Improperly accelerating payments: Schools that use acceleration clauses in their loans when a student withdraws from the program could be putting a heavy financial burden on them by making their loans immediately due and collectible.

• Failing to issue refunds: If a borrower withdraws from a program early, they may be entitled to some refunds by the school.

• Maintaining improper lending relationships: Schools that have preferential relationships with certain lenders may pose risks to students because they may end up paying more for their loans.

To help students and their families get a better grip on how to tackle their student debt, the CFPB has created a new online resource center called “Paying for College,”  It also wants student loan borrowers who are experiencing problems related to repaying student loans or debt collection to know that they can submit a complaint to the agency.

ConsumerAffairs recently researched the student loan landscape and has produced a guide that covers everything from differences between lenders to rates and terms. That guide is available here.

Navient – one of the largest student loan lenders in the U.S. – has come to an agreement with 39 state attorneys general over allegations that it wrongly led borrowers into taking on predatory and high-cost loans. 

Under the terms of the agreement, Navient will cancel the remaining balance on an estimated $1.7 billion in student loan balances owed by more than 65,000 borrowers nationwide – predominantly at for-profit schools such as the Art Institute, Corinthian, and ITT Technical Institute. Another $95 million in restitution payments will be made to approximately 350,000 federal student loan borrowers who Navient placed in specific types of long-term forbearances.

What borrowers will receive out of the settlement

The settlement will shake out differently for borrowers depending on where they live. In Pennsylvania, 13,000 borrowers will receive $3.5 million in restitution payments and another 2,467 will receive $67 million in debt cancellation. In Connecticut, 1,339 borrowers will receive $19 million in direct private loan debt relief and another 4,875 borrowers will receive nearly $1.3 million in restitution. 

“This is a massive victory for borrowers, but there is still much work ahead to address the crushing financial burden of student loan debt,” said Connecticut Attorney General Tong. “Connecticut families owe billions of dollars in student loans, an insurmountable barrier for many looking to own their own home, start a family, or grow a business. I am committed to continuing to work alongside my fellow attorneys general, and with state and federal officials, to address this financial crisis and ensure affordable education access for all.”

By all indications, students who took out loans with Navient don’t need to lift a finger to get their portion of the settlement; borrowers should be notified of their loan cancellation directly from Navient by July 2022. Federal loan borrowers will reportedly be notified by a settlement administrator in the form of a postcard later this spring. 

The Department of Education suggests that anyone who has a federal student loan should update their contact information at studentaid.gov. Navient is offering a list of FAQs for borrowers who want more information.

Widespread dissatisfaction

Navient has received one-star reviews on over 70% of reviews submitted about the company at ConsumerAffairs in the last year. That figure underscores the dissatisfaction student loan borrowers have with the lender.

Linda, of Marlton, N.J., left a review about the company in November 2021. She said that after making on-time payments for more than 16 years via an automatic withdrawal from her bank, things curiously started to spiral out of control. 

“Shortly after that I received notification that my payment schedule for my loan had changed which reduced my payment but extended my loan by several years. I did not request this and did not want this. I re-enrolled in autoPay but am being charged a higher interest rate,” she wrote. 

“I have called several times and spoken to several people, always getting the runaround. I have requested to speak to a supervisor but have not been able to. I think this company is very shady.”

You can read more reviews about Navient by visiting the company’s page at ConsumerAffairs here.

Consumers who are still repaying their college loans received some welcome news on Wednesday. In a press statement, President Biden announced that his administration is extending a pause on student loan repayments until May 1, 2022. The move adds 90 days to the previous deadline of February 1, 2022. 

Biden said he is extending the deadline due to the looming threat of the COVID-19 pandemic, which has intensified in recent weeks due to the emergence of the Omicron variant.

“We know that millions of student loan borrowers are still coping with the impacts of the pandemic and need some more time before resuming payments,” he said.

Borrowers urged to plan for repayments to resume

Biden also cited improvements to the economy and jobs market in his announcement, stating that the U.S. has added 6 million jobs this year and recorded the fewest Americans filing for unemployment in over 50 years. 

However, a rising number of COVID-19 cases could threaten the economy and cause that progress to reverse. Biden said student loan borrowers who are affected by the extension of the student loan repayment pause should do all they can to prepare for their payments to resume next year. 

“As we are taking this action, I’m asking all student loan borrowers to do their part as well: take full advantage of the Department of Education’s resources to help you prepare for payments to resume; look at options to lower your payments through income-based repayment plans; explore public service loan forgiveness; and make sure you are vaccinated and boosted when eligible,” he said. 

If Sen. Rand Paul (R-KY) gets his wish, student loans could soon be fully tax-deductible. Paul says he plans to introduce the Tax Free Education Act, legislation that could change the face of student loan programs forever if passed.

In comments made to WDRB-TV in Louisville, Ky., Paul said his five-prong approach would include the following:

• Make education expenses 100% deductible

• Enable students to deduct the cost of their education from their income tax

• Include student loans as “education expenses”

• Apply to all colleges and technical schools

• Apply to the cost of K-12 education

The rising cost of education is important to Paul. Less than two years ago, he introduced the Higher Education Loan Payment and Enhanced Retirement (HELPER) Act, a pro-taxpayer plan that he said would help Americans pay off their student loan debt more quickly and easily, plus give them an added opportunity to save more money for retirement.

"Making college tax deductible, I think, would help a lot of families," Paul said. "A lot of families are struggling. College tuition has doubled over the last decade. Loan payments are going up. I meet people in their 30s still trying to pay back their loans."

Student loans: a can of worms

We’re now in the fourth year of a prolonged battle over student loans, dating back to 2017 when a coalition of states pushed Trump Education Department appointee Betsy DeVos to take action on 25,000 loan forgiveness applications filed by students who were left stranded when for-profit schools like Corinthian Colleges collapsed.

After DeVos left that can of worms on her desk for her successor, the new Biden-appointed Education Secretary Dr. Miguel Cardona quickly forgave more than a billion dollars coming from 72,000 eligible claims from student borrowers -- the majority of whom attended Corinthian Colleges and ITT Technical Institute.

That’s a nice start, but there’s still work to do. According to the Education Data Initiative’s deep dive into the situation, there’s still a lot to shore up -- including addressing the variety of loan forgiveness programs that have different qualifications, forgiveness amounts, and qualifications. 

Unfortunately, the process of making improvements has been painfully slow. In the last two years, the number of denied claims has more than quadrupled, and as many as 43% of applications have not yet been processed.

What about the for-profit schools still in business?

Another item on Cardona and Paul’s checklist might be to help students who have loans from for-profit institutions that are still in business. As an example, ConsumerAffairs reviewer Marnie from Massachusetts pegged Capella University for the problems she’s been fighting. 

“Terrible! They took $82K from me without even knowing about it with student loans so they could profit! I am getting a lawyer against Capella AND Nelnet. If you think after 15 years I am going to pay all of YOUR FRAUDULENT money back when I wasn't even able to graduate after seeing my bill, you're nuts,” Marnie wrote.

Another frustrated for-profit college student loan borrower -- Melissa of Maryland -- says she’s still trying to sort things out with Strayer University. She accused the institution of taking her money but then changing the name of the program she completed.

“Called the dean to advise. Was told he would get it straight. Received a email advising the program was switched to Business ADMIN. from HR. I took out student loans to receive a degree in HR not Business. I could have went to another school and Received the degree I wanted. Now stuck with over 50k in student loans with no job in HR,” she wrote.

It’s a good time for consumers to look for a loan. As competition in the finance sector increases, new survey findings suggest that many banks are swimming in cash and lowering the bar on lending standards.

For loans to homeowners, banks eased standards across most categories of residential real estate (RRE) loans and reported stronger demand for most types of RRE loans over the second quarter. The Federal Reserve's July 2021 Senior Loan Officer Opinion Survey on Bank Lending Practices Banks shows that banks also eased standards and reported stronger demand across other major consumer loan categories like credit card loans and auto loans.

The impact on residential real estate lending

Digging deeper into what that means for the consumer, the survey findings suggest that banks have lightened up on their lending standards for most mortgage loan categories and for revolving home equity lines of credit (HELOCs)

“The two exceptions were for government-sponsored enterprise (GSE)-eligible mortgages—for which standards were basically unchanged on net—and for subprime mortgages, which few banks reported as originating,” Fed officials said.

The Federal Reserve says “jumbo loans” -- a stricter type of loan when a regular mortgage isn’t enough -- felt a particularly strong easing of standards. 

And on consumer lending?

Over the second quarter of 2021, a “significant net share” of banks (greater than 20 and less than 50%) reportedly softened their stance on credit card loans. At the same time, a moderate number of banks (greater than 10% and less than or equal to 20%) lessened standards for auto loans and for other consumer loans. A significant number of banks also increased credit limits on credit card accounts.

At the end of the day, analysts say it’s not a historic, earth-shattering event. It's merely banks easing their loan standards closer to where they were in pre-pandemic 2019. Nonetheless, consumers will no doubt appreciate the increased leniency.

“Clearly this is a sign of confidence in the U.S. economy,” especially in the aftermath of last year's recession," wrote Bank of America analysts in a research note.

It’s a drop in the bucket of the $1.6 trillion in outstanding student loan debt, but students who borrowed money to attend the now-defunct ITT Technical Institute got some relief on Friday. 

The U.S. Department of Education said those who attended the school but never received a degree are getting their remaining student debt forgiven.

After a new review of the issues that led to ITT Tech closing its doors, the agency announced that it will make $1.1 billion in closed school discharges available to an additional 115,000 borrowers -- 43% who are believed to be in default. The only stipulation those borrowers have to face is that they did not complete their degree or credential and left ITT Tech on or after March 31, 2008. 

Friday’s action brings the total amount of loan discharges approved by the Department since January 2021 to $9.5 billion -- a welcome relief to more than 563,000 student loan borrowers.

"For years, ITT hid its true financial state from borrowers while luring many of them into taking out private loans with misleading and unaffordable terms that may have caused borrowers to leave school," said U.S. Secretary of Education Miguel Cardona. 

"Today's action continues the Department's efforts to improve and use its targeted loan relief authorities to deliver meaningful help to student borrowers. At the same time, the continued cost of addressing the wrongdoing of ITT and other predatory institutions yet again highlights the need for stronger and faster accountability throughout the federal financial aid system."

Steps former ITT Tech students need to take

According to Education Department regulations, former ITT Tech students who have outstanding student loans need to know the following:

• They are eligible for loan relief if they attended an ITT-owned institution that shut down between November 1, 2013, and July 1, 2020.

• If they meet the above requirement and did not enroll in another institution within three years of their school closing down, they will receive an automatic loan release.

• Borrowers who enrolled elsewhere but did not complete their program of study may still be eligible for a discharge, but they will need to submit an application.

Borrowers can access the closed school discharge application by contacting their servicer or visiting StudentAid gov/closedschoolform and returning a completed application to their servicer.

The Department will begin processing discharges in September 2021, and borrowers will start receiving automatic discharges soon thereafter.

The U.S. Education Department has announced that it will begin automatically canceling the student loans of more 323,000 severely disabled borrowers. 

In a statement on Thursday, the agency said it will start discharging the debt of borrowers who are unable to maintain gainful employment due to a permanent physical or psychological medical impairment. The action will take effect starting in September.

"Today's action removes a major barrier that prevented far too many borrowers with disabilities from receiving the total and permanent disability discharges they are entitled to under the law," said U.S. Secretary of Education Miguel Cardona. "From day one, I've stressed that the Department of Education is a service agency. We serve students, educators, and families across the country to ensure that educational opportunity is available to all.” 

Burdensome rules

The action is being carried out through the Total and Permanent Disability (TPD) discharge program. While the move is intended to help many struggling borrowers, critics have argued that potential beneficiaries may face challenges in submitting a formal application. Some may even be unaware that they qualify. 

“We've heard loud and clear from borrowers with disabilities and advocates about the need for this change and we are excited to follow through on it,” Cardona said. “This change reduces red tape with the aim of making processes as simple as possible for borrowers who need support."

More than $5.8 billion in debt will be wiped out as a result of the move, the Education Department said. The changes introduced today will go into effect starting in September, and all of the loans are expected to be discharged by the end of the year.

The Biden administration has announced that it’s erasing $500 million in student loan debt for 18,000 former ITT Tech students. 

ITT Tech was shut down in 2017 after the government revoked its federal funding and decided that the for-profit institution had cheated students out of money. The Department of Education said Wednesday that the school misled students about how much they could expect to earn after graduating, as well as how their credits would transfer to other schools.

Education Secretary Miguel Cardona said the action comes with a promise that the Department will continue to stand up for students who were misled by their schools. 

"Our action today will give thousands of borrowers a fresh start and the relief they deserve," Cardona said in a statement. "Many of these borrowers have waited a long time for relief, and we need to work swiftly to render decisions for those whose claims are still pending."

Entitled to relief

In March, the Department of Education announced that it would cancel $1 billion in student loan debt for about 73,000 defrauded students of Corinthian Colleges and ITT Technical Institute. 

An official said a review of Betsy DeVos’s guidelines dealing with student loan relief did not grant an “appropriate level of relief to borrowers” and added that there was “clear evidence” that they had been taken advantage of.

“It has been more than four years since the Department of Education first concluded that these students had been cheated by their institutions and were deserving of full debt relief,” Education Department Chairman Robert C. “Bobby” Scott (D-VA) said. “Unfortunately, instead of simply processing loan forgiveness claims, the previous administration refused to accept the findings of its own staff and suspended action on behalf of these defrauded borrowers.”

As the Biden administration considers whether it can legally cancel student loan debt, Sen. Bernie Sanders (I-Vt.) is upping the ante by proposing a tax on Wall Street investors to provide free college education.

Sanders has introduced the College For All bill in the Senate. Rep. Pramila Jayapal (D-Wash) has sponsored the same measure in the House. The bill, if enacted into law, would pay tuition for all students attending community colleges and public trade schools. It would eliminate tuition at four-year public colleges and universities, but only for students from families earning less than $125,000 a year. It would also provide the same support for public and private historically minority colleges and universities. 

The U.S. government would provide 75% of the funding, with states providing the rest. The federal government would raise money for the program by placing a tax on Wall Street transactions.

Sanders previously proposed a tax on Wall Street to pay for public education. Under that proposal, the tax on stock trades would be 0.5%, the levy on bond trades would be 0.1%, and the fee to the government on derivative transactions would be 0.005%. A summary of the bill suggests that would raise nearly $2.5 trillion.

There would likely be strong opposition to those numbers from various quarters, making it difficult to get the measure through a narrowly divided Senate.

Here’s who would pay

During the pandemic, millions of people began trading stocks using platforms like Robinhood and sharing ideas on Reddit. Along with hedge funds, they would take a hit. So would union pension funds, not to mention university endowment funds. Nearly all are invested on Wall Street.

“In the wealthiest country in the history of the world, a higher education should be a right for all, not a privilege for the few,” Sanders said in defending his proposal. “If we are going to have the kind of standard of living that the American people deserve, we need to have the best-educated workforce in the world.”

President Biden has yet to back a proposal for paying off student loan debt. During his campaign, he said he would support forgiving up to $10,000 in loans. The administration is now investigating whether the president has the legal authority to pay off $50,000 in loans per student.

In a follow-up to the Biden administration’s announcement that it will give full debt relief to students defrauded by private, for-profit colleges, the U.S. Department of Education (DOE) has released the specifics of how the program will work.

First off, the program will replace the student loan relief program established during the Trump administration under former DOE Secretary Betsy DeVos. After completing a comprehensive review of that methodology, the Biden-era DOE concluded that DeVos’ version did not result in an appropriate relief determination.

Officials say this is just a beginning -- a first step in addressing borrower defense claims as well as the underlying regulations. They say they will be pursuing additional actions, including re-regulation of student loans, in the future.

In its place, the “new” DOE under Secretary Dr. Miguel Cardona will be employing what it calls a “streamlined approach for granting full relief under the regulations to borrower defense claims approved to date.” The agency believes this change will help approximately 72,000 borrowers who will receive $1 billion in loan cancellation.

Who this applies to

The forgiveness program employs the “borrower defense to repayment" and is for borrowers who a) seek cancellation of their William D. Ford Direct Loan; and, b) have “claims approved to date that their institution engaged in certain misconduct.” 

Among the 72,000 eligible claims, a DOE spokesperson told ConsumerAffairs that the vast majority of these borrowers attended Corinthian Colleges. A smaller subset attended ITT Technical Institute.

The new loan forgiveness program also includes borrowers with previously approved claims that received less than a full loan dismissal. Full relief under the regulations of the new program will include:

• 100 percent discharge of borrowers’ related federal student loans;

• Reimbursement of any amounts paid on the loans, where appropriate under the regulations;

• Requests to credit bureaus to remove any related negative credit reporting; and 

• Reinstatement of federal student aid eligibility, if applicable.

Changes to the claims process

The DOE will begin applying this new approach effective immediately. Affected borrowers should receive notices over the next several weeks with loan dismissals following after that. 

An agency spokesperson told ConsumerAffairs that it is not changing the process of adjudicating claims. A thorough review will still be conducted to determine whether there is sufficient evidence of misconduct to merit a valid claim. 

What is changing, however, is what happens once a claim is recommended for approval.  Previously, the DOE would calculate the share of a borrower’s loan balance that would be cancelled under the partial relief methodology. That will not happen under the new process. As things stand now, claims that were approved for partial relief will now be granted full relief.

Updated information for borrowers, applications for Borrower Defense, and application management is all available at StudentAid.gov/borrower-defense.

The Federal Trade Commission (FTC) has moved to ban the operators of a massive payday lending scheme that overcharged consumers millions of dollars. 

The agency said the operators of the scheme used deceptive marketing tactics to dupe consumers into thinking that their loans would be repaid in a fixed number of payments. Instead, the company continued to pull money from consumers’ bank accounts “long after the loans’ original principal amount and stated repayment cost had been repaid,” according to the complaint. 

The FTC said the company continued to draw money from consumers’ accounts until they “completely closed their bank accounts or found some other way to cut off payments.” 

Consumer debts cleared

The scheme was carried out under a number of different names, including Harvest Moon Financial, Gentle Breeze Online, and Green Stream Lending. Under the settlement, debts owed to the operators of the scheme will be wiped from the books. 

“These defendants hoodwinked people in financial need by charging much more than promised for payday loans,” Daniel Kaufman, acting director of the FTC’s Bureau of Consumer Protection, said in a statement. “We expect payday lenders to not only honor the terms of their deal but also to refrain from making a never-ending series of unexpected withdrawals from customers’ bank accounts, as these companies did.” 

“Any consumer loan made by the company before it was temporarily shut down as part of the case will be considered to be paid in full if the original amount of the loan and one finance charge have been paid,” the statement continued. 

The FTC said the defendants will be required to turn over all corporate assets and almost all domestic personal assets, as well as a number of vehicles. Those assets will be relinquished to a receiver, which will liquidate the business and provide all proceeds to the FTC.

President Joe Biden has instructed the Department of Education to extend federal student loan payment deferrals until October. 

The order adds an additional eight months onto a payment pause made possible under a bill passed by Congress at the start of the COVID-19 pandemic. Student loan payments were originally slated to resume as normal at the end of this month. 

Now, borrowers paying off federal loans won’t have to make payments until October 1; however they are allowed to continue making payments if they want to. 

On the campaign trail, President Biden called for wiping out $10,000 in student debt per borrower. He’s expected to push for it again in an economic relief bill likely to be proposed in February. 

Biden has appointed Rohit Chopra, the former student loan ombudsman for the Consumer Financial Protection Bureau (CFPB), to be the CFPB’s executive director. Ashley Harrington, senior counsel at the Center for Responsible Lending, said she believes having Chopra at the helm will likely have positive effects for student loan borrowers. 

“Commissioner Chopra has long fought for financial markets that are fair for consumers, including student loan borrowers,” Harrington said. “We are encouraged that the CFPB will now return to its mission of protecting people’s finances, which has heightened significance in this economic downturn, and which includes a strong fair lending program.

Student debt in the U.S. ballooned to over $1.7 trillion in the third quarter of 2020, according to Federal Reserve estimates. 

That figure represents an increase of almost 4 percent year-over-year and a staggering 102 percent increase from ten years ago, CNBC reported. Towards the end of 2010, Americans owed around $845 billion in student loans. 

As student debt totals have snowballed, lawmakers have proposed a number of different policies. The CARES Act passed by Congress in March halted federal student loan payments. That provision has been extended through January 2021. 

President-Elect Joe Biden has been urged by House and Senate Democrats to take executive actions when he takes office to implement resolutions that would forgive up to $50,000 of federal student debt for borrowers. 

Tackling the crisis 

Student debt reform was a key part of Biden’s presidential campaign. Though he hasn’t said specifically what he plans to do once inaugurated, he proposed creating a program that offers $10,000 of undergraduate or graduate student debt relief for every year of national or community service.

“Individuals working in schools, government and other non-profit settings will be automatically enrolled in this forgiveness program; up to five years of prior national or community service will also qualify,” according to the proposal. 

In the longer-term, Biden has proposed eliminating undergraduate tuition-related federal student debt from public colleges for people who make less than $125,000 per year.

Proponents of such resolutions argue that wiping out student debt would help the struggling economy, since money that doesn’t get thrown at student loans would be spent in the retail industry or put toward big purchases like buying a house. 

With all the might it can muster, Google is coming to the rescue of student loan holders by introducing a student loan repayment program for all Google employees in the U.S. Starting in 2021, Google says it will match up to $2,500 in student loan payments per Googler per year. 

The company’s white hat approach is certainly a welcome refrain. Americans face an enormous student loan deficit of $1.5 trillion dollars -- twice what it was 10 years ago. 

Both the White House and Education Secretary Betsy DeVos have stonewalled virtually all attempts to create some relief, not only during the pandemic but for students who were defrauded by for-profit institutions and are still accountable for repaying their loans. DeVos’ department even gets a paltry 1-star rating from ConsumerAffairs reviewers -- one going so far as to call them “legalized loan sharks.”

Helping save money for life essentials

While Google can’t erase a student loan completely, it feels that $2,500 a year can help people pay their loans off quicker. That might give consumers a better opportunity to purchase a home, start a family, or invest in a 401(k). 

“Lack of financial resources should not prevent someone from accessing the opportunities that come with education,” John Casey, the Director of Global Benefit at Global wrote in the company’s announcement.

“Change starts at home. We’re hoping this student loan repayment program gives our workforce some relief from student loans and helps them build more financial stability over the long term. And we’ll keep looking for more ways to increase access to education and opportunity for everyone.”

The new loan repayment program is one more component in the attention Google has recently started offering students. In July, it rolled out Google Career Certificates, a way for Americans to qualify for high-paying, high-growth jobs with no college degree required. 

Students who attended the college chain ITT Tech, which went bankrupt in 2016, will have their student debt forgiven under a nationwide settlement. 

This week, the attorneys general of almost all 50 states and the federal Consumer Financial Protection Bureau announced a settlement that will wipe out a collective $330 million in debt for the 35,000 students who attended the school and still have outstanding balances. 

The now-defunct school imposed high-interest loan payments through private lender PEAKS Trust, and these debts have continued to affect the credit scores of former students. 

"The default rate on the PEAKS loans is projected to exceed 80%, due to both the high cost of the loans as well as the lack of success ITT graduates had getting jobs that earned enough to make repayment feasible," the Ohio Attorney General's office said in a statement. "The defaulted loans continue to affect students’ credit ratings and are usually not dischargeable in bankruptcy.” 

Deceptive practices

In a complaint filed by the CFPB, government prosecutors said ITT knew borrowers would be unable to repay the high-interest loans. In some cases, the loans were signed by ITT employees without the borrower’s knowledge or permission. 

“Their tactics were wild,” Massachusetts Attorney General Maura Healey wrote on Twitter. “ITT offered students temporary credit upon enrollment to be repaid the next year. When some students couldn't pay, ITT allegedly pulled them out of class and threatened to expel them if they did not refinance their debt with a high-interest PEAKS loan."

Former students don't need to take any action to have their ITT debt erased; PEAKS will send students a notice. Students with questions for PEAKS can email the company at customerservice@peaksloans.com or call 866-747-0273.

A number of consumer groups have filed comments with the Office of Comptroller of the Currency (OCC), opposing a proposed rule change they say will overturn state laws limiting how much interest consumers can be charged.

Currently, 45 states have laws on the books that cap interest rates at a certain level, usually around 36 percent. That makes it all but impossible for small-dollar lenders to operate in those states since the interest rate on these short-term loans can easily be in the triple digits.

Since national banks are not subject to state laws, some payday lenders have proposed teaming up with a bank when they make short-term loans. Consumers get the loan from a payday loan storefront, but the loan would actually come from the unregulated bank on paper, which under the law can charge whatever it wants.

“Under this proposal, a bank makes a loan if, as of the date of origination, it is named as the lender in the loan agreement or funds the loan,” the OCC said in its proposed rule change.

‘Explosive, high-cost loans’

Critics say this proposal would open up consumers to dangerous lending practices that could threaten their financial stability.

“This proposed rule would unleash predatory lending in all 50 states, including the 45 states that have enacted interest rate caps to protect their residents from exploitive, high-cost loans,” said Rachel Gittleman, financial services outreach manager at the Consumer Federation of America (CFA).

The Center for Responsible Lending (CRL) calls the rule change an “end run,” allowing lenders to overcome state regulations that limit interest rates. Critics also call it a “rent-a-bank” scheme, since the bank of record has little involvement in the actual loan, though it may loan the money to the third-party lender, which in turn loans it to the consumer.

“The OCC’s proposal provides that a bank ‘makes’ the loan and thus is the lender -- so that state interest rate laws do not apply -- so long as the bank’s name is on the loan agreement or the bank funds the loan,” CRL said in a statement. “This rule would prohibit courts from looking behind the fine print form to the truth about which party is running the loan program and is the ‘true lender.’”

Who is the true lender?

The “true lender” part of the current regulation has allowed the courts to prevent evasions of state usury laws by looking beyond the official forms and determining what entity is actually making the loan. Lauren Saunders, director of the National Consumer Law Center, says that would end under the OCC’s proposed rule.

“The true lender doctrine has long been used to prevent payday lenders and other high-cost lenders from laundering their loans through banks, which are not subject to state interest rate caps,” Saunders said.

In a recent op-ed in American Banker, John Ryan, CEO of the Conference of State Bank Supervisors, urged the OCC to let Congress determine what is and isn’t a bank, saying the emergence of the fintech industry has muddied the waters. 

Ryan also suggested that for a business to be considered a bank, it should be required to accept deposits as well as lend money.

A survey of families with college students provides a snapshot of how the coronavirus (COVID-19) pandemic has affected family budgets, with 56 percent of families reporting their budget has taken a hit.

The College Ave Student Loans survey was conducted in January before the pandemic hit and then again in June. While well over half of the families are dealing with the negative impact of the virus’s economic disruption, 72 percent say they are still able to help their children pay for college.

While nearly 6 in 10 families are dealing with negative effects to their finances, 58 percent of that group has been able to cope by dipping into savings. But the reliance on savings was not something they planned for.

Because of that, 43 percent said they delayed major purchases while 29 percent have relied on credit cards more than usual. 

Varied impact

The economic impact is not only widespread but varied. Twenty-five percent of the households in the survey reported that at least one parent has been furloughed or has permanently lost a job. Twelve percent were forced to close a business, at least temporarily. Nearly 75 percent predicted the need to borrow at least $5,000 to get through the year.

In the five months between the surveys, parents have had to refocus their priorities. In particular, the June survey found that the approach to paying for college had changed. 

The most recent survey found fewer families are relying on parental income, savings, and 529 accounts. Instead, they’re leaning more on grants and scholarships, student loans, and the student pitching in by working.

“During these unprecedented times, families who have children headed to college will need to come together and have open and honest conversations about the road ahead,” said Jean Chatzky, CEO of HerMoney, which conducted the survey. “Parents must keep in mind that while there are loans for college, there are no loans available for retirement.”

Take nothing for granted

Chatzky’s advice to students is to get a job. After all, generations of college students before them did it. 

“For parents who might be feeling guilty about not contributing more to their child's education, don't,” Chatzky said. “Understand that it's okay for your child to work and take out an appropriate amount of loans, and you can help them guide them through these important first steps into adulthood."

For families that have been fortunate enough to avoid negative economic impact, Chatzky says nothing should be taken for granted. Look for places where you might be able to make cuts to your budget on a monthly basis so you can put that money towards your college fund or college expenses.

Treasury Secretary Steven Mnuchin says his talks with Congressional Democrats over the weekend were productive and that the two sides are close to a deal on another small business aid package.

The aid package reportedly under discussion would spend another $370 billion, with much of it going to the popular Paycheck Protection Program (PPP). The government made $350 billion in those loans in less than two weeks.

Democrats initially opposed a Senate measure that refunded that program, holding out for aid to other entities. The Treasury secretary said the new legislation would likely include $75 billion for hospitals and $25 billion to expand state testing for the virus -- two main negotiating points for Democrats.

“I’m hopeful we can reach an agreement the Senate can pass tomorrow and the House can pass Tuesday,” Munuchin said in a Sunday interview on CNN. “We’re making a lot of progress.” 

Top Congressional Democrats confirmed Mnuchin’s interpretation of the talks, though they were slightly less optimistic on the timeline for passing something. On CNN, Senate Democratic Leader Chuck Schumer (D-N.Y.) said the two sides have “made very good progress.”

Popular loan program

Under the terms of the PPP, businesses with fewer than 501 employees are eligible for special Small Business Administration (SBA) loans. If they keep their payrolls intact during the term of the loan and make no layoffs, the portion of the loan used to meet payroll could be forgiven. 

The program has two objectives -- keeping America’s small businesses solvent and keeping as many people as possible employed. An estimated 20 million Americans have filed for unemployment benefits as the coronavirus (COVID-19) shut down the economy.

While small businesses are struggling to survive amid the shutdown, so are large businesses -- in particular national retail chains like JCPenney, Macy’s and Neiman Marcus. Reuters reports Neiman Marcus is considering bankruptcy after temporarily closing all of its stores and furloughing most of its employees.

Neiman Marcus missed making debt payments last week that totaled millions of dollars, including one that only gave the company a few days to avoid a default.

Working your way through college was once a time-honored tradition, but with today’s sky-high tuition, who can do that?

The concept may be making a comeback as more companies begin offering college tuition benefits for their employees. Chipotle Mexican Grill is the latest company to introduce what it calls “debt-free degrees” for eligible employees.

Chipotle says it is expanding its current Chipotle Cultivate Education benefits program that has provided company employees with more than $20 million in tuition assistance over the last two years.

Under the expansion, Chipotle says it will cover 100 percent of tuition costs for 75 different business and technology degrees and provide the assistance upfront, not through reimbursement.

Four months on the job

To qualify, an employee must have been on the job for at least 120 days. After that, they are eligible to seek degrees from non-profit and accredited universities such as the University of Arizona, Bellevue University, Brandman University, Southern New Hampshire University, and Wilmington University.

The program is being administered through Guild Education, an education benefits company.

"This expansion of Chipotle's Cultivate Education benefits program to cover 100 percent tuition costs upfront for degrees in business and technology represents the company's commitment to upskilling its workforce and helping employees achieve their professional goals," said Rachel Carlson, Guild Education CEO & co-founder. 

"We are thrilled to partner with Chipotle as they continue to lead the way in the fast-casual industry for enhancing the employee experience with best-in-class benefits."

Starbucks’ tuition reimbursement

A growing number of companies whose workforces include a  large number of young, entry-level, and often minimum wage workers have taken the step of providing financial assistance for education.

In 2015, Starbucks introduced a tuition reimbursement program for its employees who wanted to complete their college education. The program provides 100 percent tuition coverage for the last two years of school in Arizona State University’s online curriculum. The program is open to full-time and part-time employees who work at least 20 hours a week.

For students who have already run up some student loan debt, there is also a growing number of employers willing to help. As we reported previously, more corporations are making student loan repayment an optional employee benefit.

At the time, 73 percent of major corporations surveyed by Challenger, Gray, & Christmas either offered or planned to offer a student loan repayment package.

Across the nation, senior citizens are collectively carrying $86 billion in student loan debt -- a figure that rose 161 percent between 2010 and 2017, the Wall Street Journal reported.

The sharp increase in student loan debt among consumers older than 60 was the largest out of any age group during that time frame.

A primary cause of the burden of student loan debt falling increasingly on older Americans is the rising cost of college. In some cases, seniors co-signed loans to pay for their children or grandchildren’s college education. In other cases, seniors went back to school after the 2008 financial crisis caused them to lose their job and had to borrow to finance their education.

In 2015, the government seized social security benefits, tax refunds, or other federal payments from 40,000 U.S. consumers aged 65 or older who had defaulted on their student or parent loan debt, up 362 percent from the previous decade, according to the Journal.

“The borrowing buildup has upended the traditional arc of adult life for many Americans. Average debt levels traditionally peak for families headed by people aged 45 to 54 years old,” the Journal noted.

Seniors hobbled by student loan debt

A study conducted in 2018 by the Association of Young Americans (AYA) and AARP found that 32 percent of seniors with student debt had to use their retirement savings to help pay off the loans. About a third of seniors (31 percent) couldn’t buy a new home because of student loan debt, and nine percent couldn’t afford health care because of student debt.

“The trillion-dollar student loan crisis is clearly having a tangible impact on all Americans across all generations,” said AYA Founder Ben Brown. “The impacts of this crisis have deep consequences on our economy as a whole, with the majority of Americans noting that student loan debt has been a barrier in making key life decisions and planning for the future.”

Student loans are the second largest credit debt for Americans, coming in behind mortgage loans.

Economic policymakers, including Federal Reserve Chairman Jerome Powell, have expressed concerns over the possible toll of student loan debt on the economy as a whole. In the years since the financial crisis, student loan debt has been linked to a slowdown in home ownership, marriage and starting families.

In a new marketing effort, some colleges will begin price-matching tuition in the hopes of bringing in more students.

While a number a private universities will be offering students public school tuition, a number of public institutions will be offering out-of-state students the opportunity to pay like the locals.

Using billboards and social media campaigns, colleges and universities across the country are hoping to draw in more students from their local areas. Additionally, many schools are hoping they’ll attract higher-performing students, thus boosting their academic profiles, while others are hoping to change the public perception that college is unaffordable.

Nathan Mueller, a principal at EAB -- a consulting firm that helps schools with enrollment strategies -- said that any increases in enrollment universities see after announcements like these will most likely not last long-term. He says that “the interest seems to cool” once schools have the time to evaluate the success of the initiative.

Specific offers

At Oglethorpe University near Atlanta, students with a GPA of 3.5 or higher and a 1250 SAT or 26 ACT score will be eligible to pay the tuition rate of any in-state university. This year, Oglethorpe’s tuition and fees is posted as $39,830. However, with scholarships, students would pay much less, and the average Oglethorpe student ends up paying $13,700 per year.

President Lawrence Schall is hoping to attract higher-performing students, as well as prove that a private education can be affordable and attainable.

“It is about growing the top of the class,” Dr. Schall said.

Currently, Oglethorpe admits roughly 25 percent of the students it accepts, though 10 to 15 percent of those students are high-ranking.

Recently, Oglethorpe has seen an increase in tuition revenue, and in an effort to continue the upwards trend, the school is hoping to admit and enroll even more students -- and from different locations. While the majority of the students are from Florida, Tennessee, and Georgia, Oglethorpe’s newest freshman class comes from 17 different states.

Similarly, since 2012, the University of Nebraska at Kearney has experienced a one to two percent enrollment decline. Now, the school will be offering students from Colorado and Kansas in-state tuition.

Sarah Dieffenbacher borrowed $50,000 in federal student loans so she could study to become a paralegal in a program at Everest College in Ontario, California, but she never found work in her field.

The college shut down eight years later, after the Department of Education determined that Corinthian Colleges, the for-profit chain that operated the campus, had defrauded the government and consumers by providing inadequate career training and falsifying job placement data.

Federal student loans are supposed to be forgiven if the feds determine a school defrauded its students, consumer attorneys say, but that still hasn’t happened, according to the Project on Predatory Student Lending, a legal clinic at Harvard University that is suing the federal government on behalf of Dieffenbacher and thousands of other former Corinthian College students.

The Harvard legal clinic was formed in 2012 by attorneys who describe for-profit colleges as a predatory industry and the federal government as the industry’s longtime enablers.

Denying debt relief efforts

This weekend, the clinic filed a motion alleging that the Department of Education illegally obtained earnings data from the Social Security Administration to continue denying former Corinthian students debt relief.

“The Department of Education had already unfairly and unlawfully refused to cancel these bogus loans for so long,” Josh Rovenger, one of the attorneys representing the students, told the Washington Post. “Now, it has secretly and illegally co-opted Social Security data to try to argue for something less than the complete cancellation and refund that these borrowers are due.”

Some former Corinthian students have even had their tax refunds seized by the federal government to pay off  their loans, the attorneys say, or worse.

In Dieffenbacher’s case, the Department of Education attempted to garnish her wages until the legal clinic filed an emergency order on her behalf.

Slow relief under two administrations

If former Corinthian students made little progress in loan forgiveness under Obama, they are faring worse under the Trump administration.

In December, the Department of Education announced that it would only be forgiving loans of Corinthian students if their salary did not match earnings made by people who completed other vocational programs. Many students shortly after received letters stating that they would only get partial loan relief.

Department of Education Secretary Betsy Devos framed the decision as one that was necessary to save taxpayers money, but students say in the recent legal filing that using their social security data to prevent loan forgiveness violates several laws and their constitutional rights.

Warren investigation

The Obama administration cut off federal funds to the Corinthian College chain in 2014 and encouraged defrauded students to apply for loan forgiveness when the company went bankrupt in 2015. But over a year later, an investigation conducted by Sen. Elizabeth Warren found that most students who attended the schools did not see any loan relief.  

Even after the Department of Education encouraged students to apply for a debt discharge, only a fraction actually received one, Warren wrote in a letter to former Education Secretary John B. King. A staggering 80,000 other former Corinthian students continued to face some fort of debt collection for not repaying their loans, the senator said.  

“It is unconscionable that instead of helping these borrowers, vast numbers of Corinthian victims are currently being hounded by the Department’s debt collectors...all to pay fraudulent debts that, under federal law and the Department’s own policies, are likely eligible for discharge and thus, invalid,” she wrote.

Over a year and a half later, the students now face a presidential administration that is even friendlier to for-profit schools.

Devos friendlier to for-profit schools

As DeVos began turning back or freezing Obama-era regulations on for-profit colleges, some states took matters into their own hands. Massachusetts Attorney General Maura Healey, for instance, filed a similar lawsuit demanding debt relief for former Corinthian students in December.  

Healey is among numerous state attorneys general who have launched their own lawsuits and investigations into for-profit colleges and the student loan industry in an attempt to block either from collecting payments. But last week, the Department of Education published a notice claiming that states do not have the authority to impose regulations on student loan services.

"Massachusetts is improperly seeking to impose requirements on the department’s servicers that conflict with the Higher Education Act, federal regulations, and federal contracts that govern the federal loan programs," DeVos wrote in a recent memo. "We believe that attempts by other states to impose similar requirements will create additional conflicts with federal law.”

Rising Treasury bond yields over the last three months and increases in lending are pressuring banks to pay a higher interest rate on deposits, giving consumers a slightly better rate of return.

Since the financial crisis, banks have paid less than one percent interest on deposits, largely because the Fed's key interest rate was at zero, and also because banks were making fewer loans. They really didn't need depositors' money.

It was a big adjustment for savers -- particularly seniors -- who had counted on a safe three to five percent return before the financial crisis and Great Recession.

But banks are now paying well over one percent interest on certificates of deposit (CDs). Banks need deposits from consumers to make loans, which have been more plentiful as the economy has recovered.

Rising Treasury bonds

Yields on Treasury bonds have also risen significantly in recent months, increasing pressure on banks to raise the interest they pay on deposits.

In mid-November, the yield on the Treasury's one-month bond was 1.05 percent, double the rate in January. The yield on the six-month bond was 1.40 percent, up from 0.65 percent at the beginning of the year.

While this is a dramatic increase, economist Joel Naroff, of Naroff Economic Advisors, says it really isn't anything for consumers to get excited about.

"The rates are still historically low and it will take forever for anyone to make much money if they put their funds into savings accounts," Naroff told ConsumerAffairs.

"For older investors who have to be much more liquid, this does very little for them and there is also little incentive for others to switch into savings accounts from other riskier accounts. But it is better than nothing."

A safe place for money

For consumers, the advantage of putting money in the bank is zero risk. Deposits are insured up to $250,000, but there is a wide variation in what banks pay depositors.

Internet banks tend to pay the highest interest rates since they lack the overhead of brick and mortar operations. Ally Bank pays 1.5 percent for a 12-month CD of less than $5,000.

If you are willing to commit to a five-year CD, Ally will currently pay a rate of 2.25 percent.

Major national banks pay significantly less. Bank of America is currently advertising a 12-month CD at 0.07 percent with a $10,000 minimum opening balance.

Despite the current low-rate environment, it's possible banks could become more generous with savers in the months ahead. The Federal Reserve's key interest rate is now at 1.25 percent, with most analysts expecting it to rise to 1.5 percent at the Fed’s December meeting.

U.S. college students have run up $1.4 trillion in student loan debt, but some college majors have apparently prepared borrowers to pay down that debt at a faster rate.

CometFi, a resource site for college grads with student loan debt, has drilled down into the student debt numbers over the past decade and unearthed some surprising facts.

When it measured student loan debt against fields of study and subsequent careers, the study determined that graduates in journalism and broadcasting have done the best job of paying off their student loans.

This group graduated with an average of $27,000 in loans but now owes an average of $12,000, reducing balances by 55 percent. Graduates in publishing, construction, and real estate have all paid off at least 47 percent of their loans.

Graduates working in telecommunications have paid only 16 percent, while those in scientific jobs have reduced their debt by only 19 percent. Those in medical and health care have paid back just 20 percent.These results are particularly surprising because graduates in the so-called science, technology, engineering and mathematics (STEM) fields, including healthcare, have made the slowest progress paying off their student loans.STEM grads have made less progress

"So why is it that journalists have paid off almost twice as much debt?" the authors ask. "Perhaps it’s because medical professionals were more likely to have other types of debt – business loans to buy into a practice or personal debt incurred during residencies they were simultaneously paying off. Perhaps it’s because people who choose these professions value lifestyles that require more spending, or it may be that medical degrees aren’t quite the financial windfall we think they are."

The survey also analyzed students’ financial reliance on parents or family, finding that 51 percent of students paid for their education themselves while 24 percent relied on their parents.

It also looked at where students attended school, finding that a large majority -- 57 percent -- attended public, in-state institutions where tuition is typically lowest. Twenty-four percent attended more expensive private schools.

However, those attending private colleges graduated with the most debt but have simultaneously done the best job of paying it back, reducing their loan balances by an average 32 percent. Technical and trade school graduates have paid off 30 percent of their loans, barely outstripping 29 percent paid off for public, in-state graduates.

Giving advice to their younger selves

Perhaps the most intriguing aspect of the survey involves looking back. Knowing what they now know, graduates were asked to give advice to their younger selves.

If they had it to do over, 49 percent of graduates said they would spend the first two years of school at a community college and live at home. Eighteen percent said they actually did that.

Fifty percent of graduates said they would choose to attend a less expensive college and only 54 percent agreed that the cost of attending college was worth it.

Student debt has had significant economic impact on the generation that has graduated in the last decade, making many major purchases (in particular buying a home) more difficult. Moreover, the weight of student loans has left this group cash-strapped even on a small scale; forty-six percent of respondents said they did not have the cash on hand for a $400 emergency.

The survey found a direct correlation between student loan debt and the ability to meet that unexpected expense, with those with the least amount of debt most able to handle it.

A report by the Consumer Financial Protection Bureau (CFPB) shows student loans -- and especially those backed by the government -- remain a major source of consumer complaints to the agency.

The report documents a surprising increase in complaints about federal student loans, generally regarded as more consumer-friendly than those from banks and other private lenders.

Federal loan complaints rising

According to the Department of Education, federal student loans include many benefits not typically offered with private loans, such as fixed interest rates and income-driven repayment plans. In contrast, private loans are generally more expensive than federal student loans.

The annual Student Loan Ombudsman Report found that over the last year, the CFPB received nearly 23,000 complaints involving all types of student loans. More than half were complaints about federal loans.

Whitney Barkley-Denney, a policy counsel and student loan specialist with the Center for Responsible Lending, says the increase in federal student loan complaints is disturbing.

"When 56 percent of consumers filing complaints are frustrated by an inability to access options such as income-driven repayment (IDR), these new findings help to explain why so many borrowers are in default," she said.

Many of the complaints focused on loan servicing and debt collection policies. Barkley-Denney draws a comparison to the foreclosure crisis, when she says many homeowners unnecessarily found themselves in foreclosure.

"There are now borrowers who are unnecessarily defaulting on student loans when alternatives exist to protect their payment affordability and their credit ratings," she said. "These unnecessary defaults, in many cases, contribute to the debt collection complaints involving student loans.

Optimistic results

Despite the increase in federal student loan complaints, the CFPB report strikes a more optimistic tone when it discusses results. The agency said it was able to produce more than $750 million in relief for borrowers and improved loan servicing for millions more.

The CFPB says it was able to provide automatic interest rate reductions for eligible military personnel and eliminate "surprise defaults" from the majority of new private student loans. But the agency said the large number of complaints from student loan borrowers shows widespread student loan servicing problems persist.

“As borrowers continue to fall through the cracks of our broken student loan system, the Bureau’s work to date offers a roadmap for consumer-driven reforms,” said CFPB Student Loan Ombudsman Seth Frotman.

More work needed for a better market

Frotman says giving borrowers the power to bring these problems to the attention of government regulators is a positive, but says regulators have a lot more work to do to produce a student loan market that works better for consumers.

The CFPB keeps track of how much money has been loaned to students to attend college and puts the current balance at more than $1.4 trillion. It says about 44 million consumers now owe money on their student loans, in some cases reducing their spending power.

The CFPB report shows more than eight million student loan borrowers are currently in default and more than 1.2 million borrowers defaulted on their student loans last year.

The Federal Trade Commission and eleven state attorneys general are launching a coordinated attack on student loan debt relief services, alleging they have fraudulently collected roughly $95 million in fees.

“Winter is coming for debt relief scams that prey on hardworking Americans struggling to pay back their student loans,” said Maureen K. Ohlhausen, FTC Acting Chairman. “The FTC is proud to work with state partners to protect consumers from these scams, help them learn how to spot a scam, and let them know where to go for legitimate help.”

Florida Attorney General Pam Bondi has filed two of 36 total lawsuits, charging two Florida-based companies misled student loan borrowers into believing they would be enrolled in a loan forgiveness program, making unkept promises.

She says the students would have been much better off using the money they paid in upfront fees to make payments on their loan balances. Illinois Attorney General Lisa Madigan also filed two separate actions against firms in her state.

Borrowers not getting the right information

“Student loan debt relief scams are successful because borrowers are not receiving the information they need to repay their loans,” Madigan said. “They rob borrowers of the money they could be using to pay down their student loan debt.”

With approximately 42 million borrowers owing more than $1.4 trillion in student loans, some firms have targeted this debt-burdened group with promises of relief. Similar scams targeted homeowners facing foreclosure following the 2008 housing market crash

Consumers were charged upfront fees and, in many cases, ended up in worse shape than before.

While the government has established some ways for student loan debt to be forgiven, borrowers should understand that it is very difficult to walk away from a student loan. This debt is so iron-clad it cannot even be discharged in bankruptcy.

Don't fall for big promises

Madigan says student loan borrowers should not believe sales pitches that claim to have expertise in navigating the debt relief process. Some of these firms have names that make them sound like a government agency when they clearly are not.

These companies often employ high-pressure sales tactics, providing erroneous information in order to scare borrowers into signing up. People who do sign up are often charged upfront fees as much as $700.

The service they provide is available to any consumer at no charge if they contact government agencies like the Department of Education and the Consumer Financial Protection Bureau (CFPB).

Under federal law, there are a few cases in which a student loan may be forgiven, such as when a for-profit school goes out of business or the borrower takes certain public service jobs. The Department of Education lists them here.

A growing number of employers now offer some help in repaying student loan debt as an employee benefit. Earlier this year, outplacement firm Challenger, Gray & Christmas reported nearly 73 percent of the firms it surveyed either currently offer or plan to offer a student loan assistance package.

College enrollment appears to be inching down, according to a recent report by the National Student Clearinghouse Research Center.

The Center found that Spring 2017 enrollment fell 1.5 percent from Spring 2016. The greatest declines were at for-profit institutions, which have faced increasing regulatory scrutiny. But enrollment also dropped sharply at public community colleges.

There could be a number of reasons for this. In its coverage of the issue, higher education website The Hechinger Report noted a decline in the population of students leaving high school, as well as an increase in the number of would-be graduate students who are opting to join the workforce as the economy slowly recovers.

However, a new survey by COUNTRY Financial suggests another reason: cost.

The survey of college-age consumers asked those who had never attended college their reasons for not attending. Nearly half -- 48 percent -- said the high cost of college was a factor in their decision.

Unwilling to go into debt

Nearly as many -- 47 percent -- said they were unwilling to go into student loan debt to pursue a college degree.

"Student loans have had an impact on the ability of Americans to complete their education," the authors write. "Of those who started but did not complete a post-secondary program, 59 percent said the cost of education factored into their inability to finish their education, and 53 percent said that taking on student debt was also a factor in their incomplete education."

At the same time, the survey suggests there is still a strong respect among young people for the value of a college degree. A large majority agree that "post-secondary education is critical to success."

Some who borrowed money to attend college now appear to have a case of buyer's remorse. Thirty-six percent of those who have taken on student debt to get through school reported they are not confident they'll repay the loans entirely. Among those still working to pay back their student loans, 48 percent said they have missed at least one payment.

“Our survey found the majority of Americans who have missed a student loan payment have not done so because of error or because they forgot. It’s been a lack of money, not a lapse in memory," said Doyle Williams, an executive vice president at COUNTRY Financial.

Alternatives to debt

There are alternatives to piling on debt to attend college. Students who qualify for scholarships and aid can greatly reduce the out-of-pocket expense associated with a college degree.

In addition to federal aid packages, most colleges and universities offer their own aid to students who qualify. Completing the Federal Application for Financial Student Aid (FAFSA) is a key step in taking advantage of both, as many schools use information from a student's FAFSA to allocate their scholarships.

A free app called College Abacus can help students determine their out-of-pocket costs for each college they might be considering.

“Every school uses its own formula to allocate financial aid,” Abigail Seldin, VP of Innovation for ECMC and founder of College Abacus, told ConsumerAffairs in a 2014 interview. “Those individualized net prices are often lower – much lower – than a family's government-calculated estimated family contribution.”

The app can provide a more exact number because it takes into account each college's typical aid packages. Using the tool, Seldin said prospective students sometimes find the school of their choice is less expensive than the alternatives they were considering.

The U.S. Department of Education (ED) reports that the default rate on new federal student loans has risen for the first time in four years.

Efforts to help borrowers achieve more manageable payments appeared to be working, as the loan default rate leveled off after 2013. But as of June 30 this year, a record 8.5 million federal student loan borrowers were in default.

More than 500,000 of them defaulted in the first half of this year.

The Institute for College Access and Success (TICAS) is calling for further improvements in student loan policies and increased oversight of loan programs, but worries the ED is moving in the opposite direction.

"The Department's rollback of critical protections and enforcement will only lead to more student loan defaults, higher debt burdens, and wasted taxpayer dollars," said Pauline Abernathy, TICAS' executive vice president.

State attorneys general weigh in

Pennsylvania Attorney General Josh Shapiro and 18 other attorneys general fired off a letter to Education Secretary Betsy DeVos this week, asking her to stop the department's "systematic rolling back of critical protections for student loan borrowers."

The letter asserts that the ED does not have exclusive jurisdiction over federal student loans, but shares that responsibility with state attorneys general, the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), and other federal agencies.

In June, DeVos ordered what she called a "reset" of regulations implemented by the Obama Administration to protect students from predatory loans. She said it was intended to allow time for the department "to develop fair, effective and improved regulations to protect individual borrowers from fraud, ensure accountability across institutions of higher education and protect taxpayers."

More flexible repayment plans

In late 2013, the government began implementing new rules with more repayment options. Borrowers on the standard 10-year repayment plan, for example, could switch to a plan based on income, helping them maintain a positive monthly cash-flow.

LearnVest offers this helpful guide to the various payment options that are available under current rules. However, supporters of these repayment rules worry they will be watered down or eliminated altogether.

TICAS claims for-profit schools continue to be a big reason for rising student defaults. It points to statistics that show only nine percent of all college students enrolled in for-profit schools, but those for-profit students accounted for a third of student loan defaults among borrowers who entered repayment in 2014 and defaulted by 2016.

Shapiro says student loan borrowers will lose out if the repayment regulations are rolled back. The only entities that will profit, he says, are loan servicers and for-profit colleges.

If you are a military veteran, you may have been receiving solicitations to refinance your VA loan. After all, interest rates have been falling lately.

But the Consumer Financial Protection Bureau (CFPB) reports its complaint volume about VA loans and other financial products has steadily risen between 2011 and 2014.

Jim Nutter, Jr., President and CEO of James B. Nutter & Company, a Kansas City-based mortgage lender, cautions veterans to carefully scrutinize any refinancing offers.

“Last year, a record number of America's veterans took advantage of the VA loan program and either purchased a new home or refinanced," Nutter said.

Targeting veterans

While that may be a positive development, Nutter says a “significant” number of lenders are targeting veterans with refinance offers that carry high interest rates and closing costs.

“It's absolutely reprehensible, but unfortunately we're seeing more and more of this activity," Nutter said.

A VA loan is a mortgage that is guaranteed by the United States Department of Veterans Affairs (VA). Much like an FHA loan, it can be issued by qualified lenders. The idea behind the VA loan is to provide a financial benefit to military veterans, making it easier for them to purchase homes.

Because the government is guaranteeing a large portion of the loan, lenders usually offer the borrower an attractive interest rate. But Nutter says there have been recent cases where just the opposite was true.

"To give you just one example, our company recently reviewed a loan estimate for one veteran in which they were not only being charged excessive discount points for a VA streamline refinance, but the interest rate they were getting was a full 1% higher than the prevailing market rate,” Nutter said.

VA loan refinancing

Veterans refinancing VA mortgages to get a lower interest rate should know that no appraisal or credit underwriting package is required when applying for what's known as an interest rate reduction loan (IRRRL). The VA says an IRRRL may be done with "no money out of pocket" by including all costs in the new loan.

But the VA says there are cases where a refinanced VA loan will result in a higher interest rate. That can happen when the lender agrees to pay all or some of the buyer's closing costs or when an existing VA adjustable rate mortgage is refinanced at a fixed rate.

Like shopping for any mortgage, veterans considering a VA mortgage refinance should seek proposals from more than one lender.

A new report from Experian, one of the three credit reporting agencies, underscores how student loan debt is negatively affecting a sizable segment of consumers.

The report shows that 13.4% of U.S. consumers, from the very old to the very young, are paying on a student loan balance, eating into their monthly cash flow and ability to save for the future. Student loans are the largest amount of non-household debt and are the fastest growing debt segment in the U.S. economy.

Since 2007, student loan balances have grown $833 billion and now total $1.4 trillion.

"Student loan balances are on the rise, which is a result of the increasing cost of higher education," said Michele Raneri, vice president of analytics, Experian.

Tuition up 260% since 1980

According to Business Insider, college tuition costs grew 260% between 1980 and 2014, while the cost of everything else in the economy went up 130%. Most students find that without generous student aid or scholarships, they have to take out a student loan to get a college degree. And often, more than one loan.

The Experian report shows that students who borrow for college have an average of 3.7 student loans. The average student loan balance is $34,144.

There is also the suggestion that juggling student loans makes it more difficult to properly manage personal finances. The average VantageScore for consumers with at least one student loans is 650, while the national average credit score is 675.

Worth the cost?

Despite the financial hardships student loans cause, the prevailing wisdom is that they are worth it. Rod Griffin, director of public education at Experian, says the loans usually pay off in the form of higher income over a lifetime. But he says it's important for young people to understand the terms of their loans.

"Failure to repay even one of the loans or poor payment behavior could do long-lasting damage to your credit history and scores," he said. "Just as the value of your degree is measured over your entire career, how you manage your student loans will impact your financial future."

For students looking for ways to pay for college, the Consumer Financial Protection Bureau has created an online resource, that also includes a financial aid shopping sheet.

Student loan debt is still a heavy burden for millions, but there are now around 41,000 former students whose debt has disappeared.

In a settlement with federal and state agencies, Aequitas Capital Management, Inc., a financial services firm in receivership, will make refunds to the 41,000 students who borrowed money to attend the for-profit, and now defunct, Corinthian Colleges.

The settlement is in the final stages and must win approval from the court in Oregon that is handing the Aequitas bankruptcy.

“Thousands of New Yorkers signed up at Corinthian College to build the skills they need to compete in today’s economy,” said New York Attorney General Eric Schneiderman. “But Aequitas Capital Management took advantage of their ambition and schemed with Corinthian to saddle these students with high-default loans at the now-bankrupt college. This was nothing more than a sham that victimized unwitting students and deceived the government and taxpayers.”

Who gets a refund

Under the terms of the settlement, students who borrowed money from Aequitas Capital to attend a Corinthian school, and were attending when it closed in 2014 -- or who defaulted on their loans -- will receive a full discharge of their student loans. That includes any accrued interest.

A small number of borrowers won't receive a full discharge of their loans, but will have around 55% of the amount forgiven. Schneiderman says the average student loan borrower will get $6,000 and $7,000 in loan relief.

Schneiderman says Aequitas Capital was brought into the picture when Corinthian was in danger of having too many of its students reliant on federal aid under Title IV. Students then got private student loans through Aequitas, which allegedly had a deal with Corinthian to buy back loans in default. Schneiderman says the purpose was to make it appear Corinthian was in Title IV compliance.

'Sham loans'

“These were sham loans used by for-profit schools and lenders to access federal taxpayer dollars to fund programs that did nothing to help students get ahead,” said Illinois Attorney General Lisa Madigan.

Madigan says that after Corinthian could no longer make payments to Aequitas as agreed, the hedge fund was left holding a large inventory of loans that students could not repay. At that point, the Securities and Exchange Commission (SEC) took notice and declared the arrangement a Ponzi scheme. Aequitas failed in 2016 and was taken into SEC receivership.

If you are a former Corinthian student with student loan debt and believe you might be eligible for loan forgiveness under the terms of the settlement, contact your state attorney general to learn more. You can find your attorney general's contact information here.

One of the biggest challenges to buying a first home is coming up with the down payment. Garden State Home Loans, a mortgage lender, says it has an answer for that.

The company has launched a new home loan program for first-time buyers in its market area. A prospective homeowner only has to come up with 1% down.

FHA loans, a common way many consumers purchase their first home, requires as little as 3.5% down. Some conventional loans now only require 3% down.

If letting homeowners buy a home with only 1% down sounds risky, it's really no different from other low down payment loans. It's actually a 3% down loan, but Garden State Home Loans says it will put up the other 2%. The new homeowner starts off with 3% equity.

Significant savings

The savings are not insignificant. On a $200,000 mortgage, coming up with 3% down would be $6,000. A 1% down payment is only $2,000.

Not everyone will qualify, of course. The loan is only available to first-time buyers or buyers who haven't purchased a home in the last three years.

Additionally, the home must be used as a primary residence. The buyer's credit score required for this program is a hard 720 minimum, and the debt-to-income ratio (DTI) must not be in excess of 43%. But the loan is available with no private mortgage insurance.

The total amount owed on student loans in the U.S. hovers around $1.3 trillion, but a sizable chunk of that debt might suddenly disappear.

If it did, it would mostly affect those students who have struggled the most to pay it back.

The New York Times reports the student loans in question are private loans, mostly made by banks, that have been sold to investors. The Times reports a review of court records indicates that judges have already dismissed dozens of lawsuits brought by the owners of the loans against former students who have defaulted.

The reason? There are said to be significant gaps in the paper trail establishing who exactly owns the loans. According to the newspaper, as much as $5 billion in private student loans might simply be declared invalid, meaning the former students would owe nothing.

National Collegiate Student Loan Trusts

Lendedu, which covers the student loan industry, reports one of the biggest owners of the troubled loans is National Collegiate Student Loan Trusts, a single organization made up of several trusts. In a recent court filing, the Trusts noted that it has already lost numerous court cases based on the position that it cannot prove ownership of the loan -- a position it disputes and declares to be unfair.

"For example, this year, the Ohio Court of Appeals overturned a judgment in favor of the Trusts because the Trusts neglected to include documentation to prove that it is entitled to demand judgment of the note," the document stated.

The court filing requested the right to audit the Pennsylvania Higher Education Assistance Agency to find needed documentation for some loans. It also warned that as news spreads of the documentation issue, the likelihood of further defaults will rise.

Total loans worth $12 billion

Lendedu reports National College Student Loan Trusts is composed of 15 trusts that hold a combined total of 800,000 private student loans. Those loans could be worth $12 billion, and Lendedu says more than $5 billion of that debt is in default.

If all of this sounds vaguely familiar, private student loans are often treated the same way subprime mortgages were before the financial crisis. Then, these mortgages were sold by the lenders to investment banks who turned them into securities and sold them on the market. Roughly the same model is used for private student loans.

Eighteen states and the District of Columbia have filed suit against Education Secretary Betsy DeVos over her delay of regulations meant to provide new protections for federal student loan borrowers, particularly those at for-profit colleges.

“The Trump Administration should do everything in its power to protect our students,”said California Attorney General Xavier Becerra, one of those joining the action. “At the California Department of Justice, we will continue working to ensure that all who seek higher education can do so without worrying that their American Dream will be stolen by unscrupulous purveyors of a sham college education. These regulations should be implemented because they’re good for students and because that’s what the law requires.”

The lawsuit accuses DeVos of illegally delaying the regulations, known as the “Borrower Defense Regulations.” They were set to take effect on July 1, but DeVos announced last month that the Department of Education would refuse to implement them as part of a “regulatory reset” while looking to develop alternative regulations that would likely leave victimized borrowers with far less protection.

Becerra said the refusal is a violation of the Administrative Procedure Act because the Department improperly relied upon a legal challenge to the regulations as a basis for delay and also failed to provide the public with the required notice and opportunity to comment on the delay.

Echoes of Corinthian

Becerra noted the case of California-based Corinthian Colleges, accused of targeting low-income, vulnerable individuals through false advertisements that misrepresented job placement rates and the value of school programs.

The Attorney General's Office obtained a $1.1 billion judgement against Corinthian on March 26, 2016, and worked with the Obama Administration to ensure that tens of thousands of former Corinthian students were entitled to federal student loan relief. The process led to the creation of the Borrower Defense Regulations, which provide for:

• Automatically canceling eligible loans for students who were defrauded;
• Taking greater steps to ensure a school’s financial viability; and
• Banning schools from including or enforcing certain arbitration provisions or class-action waivers in their enrollment agreements. 

There's not a lot Republicans and Democrats agree on, but during last year's presidential campaign, then-candidate Donald Trump promised to work for a solution to the student debt crisis that he said was a crushing burden on families.

According to government data, the student loan debt is now more than $1.3 trillion, much of it owed by young families. Bearing the weight of student loan debt can put a halt on a young person’s aspirations to purchase a home or raise a family.

Now, Sen. Bill Nelson (D-Fla.) has proposed legislation to try to ease the burden. Nelson's bill seeks to cut student loan interest rates and allow borrowers to refinance their existing federal student loans.

Would counteract recent rate hike

The federal government recently increased rates for new loans from 3.76 percent to 4.45 percent. However, the bill would permanently cap interest rates for undergraduate students at 4 percent.

The proposal spells good news to students like Michael Silurso, a student at the University of Central Florida, who acknowledges that it must be difficult for kids who are graduating -- “They are trying to find a job, and they already have debt that they have to pay off," he told WFTV News, Orlando.

Sen. Nelson's bill would also eliminate the "loan origination fees" charged to students to process their loans. This fee is taken out of a student's loan before they receive it, but they are still responsible for paying back the full amount.

The Florida Democrat says capping interest rates, ending loan origination fees, and allowing borrowers to refinance existing loans would help to make education more affordable. 

“If we really want to make higher education more accessible in this country, we have to make it more affordable,” Nelson said in a news release. “If you can get a home loan at 4 percent, why can’t students get an education for the same rate?” 

Tool for paying down debt

While the legislation may or may not have a chance at passage, families still must find ways to pay down student loan debt. The Consumer Financial Protection Bureau (CFPB) offers a tool for getting started.

While everyone's situation is different, the tool will try to point you in the right direction. To get started, have a list of your monthly loans and required monthly payment amounts at the ready. Then, simply choose "your situation" and answer a series of 'yes' or 'no' questions to figure out your best course of action. 

It doesn't seem to matter which party is in power, the U.S. Department of Education is slow to correct errors, no matter how grevious. In the most recent example, the department has failed to cancel federal student loans for thousands of students victimized by predatory for-profit colleges.

A coalition of states is pressing Education Secretary Betsy DeVos to take action on the 27,000 applications for loan forgiveness filed by students whose for-profit schools collapsed and left them stranded without a degree or guaranteed admission to another school.

Some students are nearing the end of 12-month forbearances on their loans, and face restarting monthly payments on debts that should be canceled.

“There is simply no reason for Secretary DeVos to delay student loan forgiveness for the thousands who were victimized by Corinthian Colleges," said New York Attorney General Attorney General Eric T. Schneiderman. "We should be doing all we can to allow students to pursue their educations without the burden of crushing student loan debt. I call on Secretary DeVos to stop delaying this common-sense solution for those who were duped and ripped off by Corinthian."

Schneiderman and 18 other attorneys general wrote to DeVos today, pressing her to provide information on what the department is doing to reduce the growing backlog of applications and to provide a timeframe for the discharge of student debts.

The department has similarly ignored thousands of teachers whose TEACH grants were unjustifiably converted to delinquent loans because of minor clerical errors on the teachers' annual applications. 

Discharge should be automatic

Going a bit further, the AGs note that since the Department of Education has already determined that these students are eligible for loan forgiveness, DeVos should abandon the application process and automatically discharge all eligible loans.

Students eligible for loan discharges attended Corinthian Colleges, which the Education Department has said made false claims about post-graduation employment rates for many of its programs.

More than 100,000 students who attended programs at Corinthian schools received a letter in April explaining that they are eligible for streamlined federal student loan cancellation based on the Department of Education’s findings. The students were directed to fill out a short application for the Department of Education. Students who did so are still waiting for action on their request.

“Relieving these hard-working Americans of their fraud-induced student debt will free them to participate more fully in their local economies, or even continue their educations with reputable schools,” the letter explains.

The list of states signing the letter includes Illinois, Washington, Massachusetts, California, Connecticut, Delaware, Hawaii, Iowa, Kentucky, Maryland, Maine, Minnesota, Mississippi, New Mexico, New York, Oregon, Pennsylvania, Virginia, the Hawaii Department of Commerce and Consumer Affairs, and the District of Columbia.

A car title loan company operating in Massachusetts without a license faces huge losses, while its customers in the Bay State won't have to pay back their loans.

A state court has issued a permanent injunction against Liquidation LLC at the request of Massachusetts Attorney General Maura Healey. As a result of the court order, the company is barred from operating in Massachusetts and the 200 consumers who took out loans don't have to pay them back.

Sending a message

Consumers whose vehicles were repossessed because they couldn't repay their loans will get their cars back. Liens placed on vehicle titles have been dissolved and new titles have been issued to the affected consumers. Healey says the ruling should send a message.

“With this judgment, Massachusetts borrowers will be freed from paying the illegal loans made by this sham company,” she said. “This unlicensed auto title lender is prohibited from ever doing business in Massachusetts again.”

Car title loans are similar to payday loans, except instead of being secured by a paycheck, the loan is secured by a car title. But both are short-term loans that consumers often have difficulty repaying on time. If a consumer doesn't have $300 for an emergency repair and has to borrow the money, chances are they won't have the money to repay the loan two weeks later.

Car title loans usually have a longer term, but often have to be repaid in full after a year. Healey's suit charged Liquidation did not inform borrowers of the extent of final payments when the loan was due.

20% lose their vehicle

While payday loan customers are often trapped in a cycle of debt, taking out one loan after another to pay back the previous loan, many car title loan customers end up losing their vehicles. In fact, research compiled by the Center for Responsible Lending earlier this year found one in five consumers taking out a car title loan end up losing their vehicles.

Healey says several vehicles that Liquidation repossessed are now at auction houses waiting to be sold. But the court has ordered them removed and returned to their owners. In addition, the company has to pay $197,600 restitution and $1,135,000 in civil penalties.

Healey filed the suit more than a year ago after an investigation found Liquidation was making loans ranging from $700 to more than $9,000, with interest rates ranging from 181% to 619%, in violation of state law.

Back in October, the Education Department finalized rules that were intended to help students discharge their student loan debt if their school was found to be fraudulent or misrepresentative in its claims. Critics have argued that the process was rushed because regulators wanted the rules pushed through before President Trump took office.

Now, only a few weeks before the rules are set to roll out, a school trade group has filed a federal complaint saying that the regulations threaten their financial existence, according to Courthouse News.

“The final rule is a sprawling mass of thinly studied new requirements that, by the [Education] Department’s own estimates, will cost schools almost $1 billion dollars per year,” the complaint reads. “The ten-year impact on the public is estimated at $14.9 billion. It is necessary and important that regulations with such a profound fiscal impact be justified and supported by reasoned decision-making. This rule was not.”

"Crippling" regulations

The group heading the complaint – the California Association of Private PostSecondary Schools (CAPPS) – says that the new rules make it too easy for students to charge a school with fraud or misrepresentation in order to have their loans discharged.

The complaint argues that it was already possible under the previous system for students to claim borrower defense against loan repayment if they were subject to adversarial debt collection. But under the new rules, it says that the increased financial burden may very well put many schools out of business.

"The department has transformed the borrower ‘defense’ into a wide-ranging affirmative cause of action that a student can use to have all of his or her Title IV debts cancelled, or even recover loan amounts previously paid, with the student’s financial liability transferred to either the student’s school or federal taxpayers,” CAPPS said.

“The increased costs and the dramatically escalated threat of meritless claims and litigation, both before the Department and in court, will be crippling for many schools. The lack of procedural safeguards and clear standards throughout the final rule severely exacerbates these problems.”

No reasonable justification

In addition to the increased cost and liability, the complaint says that the new regulations allow schools to be labeled as “financially unsound” if they face litigation from a public entity, regardless of whether the case has any actual merit.

Under this provision, the group says that schools would be forced to negatively report their financial standing to current and prospective students and notify them if alumni have not paid their loans back quickly enough, a stipulation that the complaint says unfairly targets institutions whose students rely on income-based repayment plans or financial aid.

“The final rule creates a seismic shift in multiple areas of higher education regulation without legal basis or reasonable justification,” CAPPS said.

The complaint alleges that the rules violate First and Fifth Amendment rights and the Administrative Procedures Act and is seeking for the final regulations to be vacated by the Department of Education.

The Trump Administration has announced changes to the way student loans are serviced, reducing the number of firms students can choose from the current four to one. Critics say that creating a monopoly will reduce the incentive to provide good service.

The administration says granting exclusive rights to the student loan servicing market will save taxpayers money while improving service to student loan borrowers. But others -- including those struggling with student loans -- say the system could hardly be worse than it is now. 

In formally amending Phase II of the federal student loan servicing solicitation, the administration is rolling back yet another policy put in place by its predecessor. During the Obama administration, the Department of Education took steps to place more student lending under the federal umbrella, taking business away from banks and private lenders.

At present, there are four private companies still providing student loan servicing -- Navient, Nelnet, Great Lakes Educational Loan Services, and FedLoan Servicing. Under the Trump administration amendment, the government would solicit bids and select a single firm to service all student loan debt.

"Chaotic" system

Education Secretary Betsy DeVos said the current system is "chaotic" and having a single company servicing loans would streamline the process, making it easier for student loan borrowers.

"The federal student loan servicing solicitation we inherited was cumbersome and confusing—with shifting deadlines, changing requirements and de facto regulations that at times contradicted themselves," DeVos said in a statement. "Internal and external stakeholders both agreed it was destined for a massive and unsustainable budget overrun."

DeVos predicted the move would result in more user-friendly loan servicing while saving the government more than $130 million over five years. Critics, however, are not so sure.

Perhaps the most notorious of the current loan servicers is FedLoan, a Pennsylvania company that has for years converted student grants to delinquent debt for the flimsiest of reasons. The most notable cases involve TEACH grants, awarded to students who agree to teach for a certain amount of time in impoverished districts. 

Even though the teachers hold up their end of the deal, FedLoan abruptly and with little opportunity for appeal rules that they are not in compliance because of minor paperwork errors and hits them with the full amount of the grant plus delinquent interest and penalties.

"Legalized theft"

The Education Department has been silent about the matter, which cheated teachers have described as "legalized theft," and has never responded to inquiries from ConsumerAffairs or, as far as is known, made any attempt to rectify the injustice. 

Close behind is Navient. In January, the Consumer Financial Protection Bureau (CFPB) sued Navient, the nation’s largest servicer of both federal and private student loans, saying it has failed borrowers at every stage of the repayment process for years.

The bureau said that Navient, formerly part of Sallie Mae, created obstacles to repayment by providing bad information, processing payments incorrectly, and failing to act when borrowers complained.

Through shortcuts and deception, the company also illegally cheated many struggling borrowers out of their rights to lower repayments, which caused them to pay much more than they had to for their loans, CFPB charged.

Critics skeptical

But despite the failings of the current system, some critics fear that having only one loan servicer will be even worse.

Natalia Abrams, executive director of an advocacy group called Student Debt Crisis, expressed concern that the change would set up a monopoly, taking away the current system's incentive to provide better service.

"With zero competition, we are concerned about a 'too big to fail' student loan company that has zero incentive to work for students, borrowers, and their families," Abrams told Reuters.

Learn more in the ConsumerAffairs Student Loan Buyers Guide.

Student loan debt has risen dramatically in recent years, with reports indicating that it has climbed to 10.6% of all U.S. household debt. To help ease the burden on consumers, the federal government has paid debt collectors up to $1 billion annually to help defaulted borrowers climb out of debt and begin making monthly payments, a process referred to as rehabilitation.

However, a recent report by the Consumer Financial Protection Bureau (CFPB) shows that these federal incentives may be doing little more than costing American taxpayers. A Bloomberg report details how debt collectors often rake in money for helping consumers who quickly fall back into default on their debts.

“Collectors earn this compensation irrespective of borrower performance over the months or years following a completed rehabilitation, ensuring that collectors have no ‘skin in the game’ when a borrower defaults again. Policymakers may wish to reevaluate the economic inventive in place for debt collectors and student loan servicers to encourage long-term borrower success,” an October, 2016 report states.

Abysmal return on investment

Since the start of the 2013 fiscal year, CFPB says that the federal government has paid $4.2 billion to debt collectors for rehabilitation services, with a maximum amount of $1,710 being paid for each “successful” rehabilitation.

But when the agency tracked how much consumers paid back after these efforts, they found that the numbers were abysmally low. Statistics show that for each federal payment made to debt collectors, the amount collected afterward from the borrower was as little as $45 in 80% of cases.

Part of the problem, experts say, is that the contracts offered to debt collectors are simply too lucrative for the amount of return that the federal government gets back. CFPB points out that government’s rehabilitation program, which targets people who have defaulted on their debt, allows borrowers to pay back as little as $5 per month during a nine-month period in order to be considered in “good standing” on their debt. However, the agency found that 40% of these borrowers went into default again within three years.

“When student loan companies know that nearly half of their highest-risk customers will quickly fail, it's time to fix the broken system that makes this possible,” said Seth Frotman, a top CFPB student loan official.

"Do a better job"

To further exacerbate the problem, experts say that borrowers often don’t receive good counsel when it comes to exercising their options after coming out of default. CFPB points out that the majority of borrowers who make $5 monthly payments are eligible for $0 payments after exiting default, but around 90% of them don’t take advantage of the program and remain within the purview of debt collectors.

Education Secretary Betsy DeVos said earlier this year that it was up to the Education Department to “do a better job” than the previous administration when it came to reining in debt collectors. But thus far, student loan borrowers have only seen reductions in protections and are facing the loss of certain forgiveness programs that they were relying on. CFPB is urging the government to reconsider its loan program and debt collector contracts to ensure that they are working for the benefit of Americans.

“I don’t see how anyone wins from this system other than the collection industry,” commented Adam S. Minsky, a student debtor representative based in Boston.

The full report update from the CFPB can be viewed here.

Consumers struggling to pay back student loans have been left in the lurch lately, as the U.S. Education Department and Fannie Mae, among others, roll back protection measures from the Obama Era.

Illinois Attorney General Lisa Madigan and lawmakers in the state are trying to compensate by passing legislation at the state level. The Illinois Senate this week passed Senate Bill 1351, which would create a Student Loan Bill of Rights to protect borrowers from abuse.

The bill addresses widespread abuses and failures in the student loan industry that were revealed by Madigan’s investigation and lawsuit against one of the country’s largest student loan servicing companies, Navient.

The measure, drafted by Madigan’s office and Sen. Daniel Biss, passed the Senate by a vote of 34 to 15 with one member voting present, and will now be considered in the House, where it will be sponsored by Rep. Will Guzzardi.

“This bill is critically important now that the U.S. Department of Education has abandoned student loan borrowers by revoking reforms to prevent the abuses uncovered in my investigation,” Madigan said. “These commonsense measures will improve the financial futures of student loan borrowers, their families and our economy.”

"Misleading and self-serving practices"

“The U.S. Department of Education’s decision to roll back protections for student loan borrowers is extremely disappointing, particularly when investigations into the industry – such as those conducted by Attorney General Madigan – have revealed misleading and self-serving practices,” Sen. Biss said. “I encourage my colleagues in the House to support these commonsense reforms.”

Over the past decade, student loan debt has doubled to become the largest form of unsecured consumer debt in the country, with more than 40 million borrowers owing over $1.4 trillion. Nearly 70 percent of graduates leave college with an average debt burden of $30,000, and one-in-four borrowers are behind on their payments or in default.

Students who attended for-profit colleges are particularly hard hit, making up the vast majority of borrowers in default. While federal income-based repayment options are available, the U.S. Treasury has reported that only 20 percent of eligible borrowers are enrolled in these options, which can lower payments based on income to as low as $0 a month.

Madigan said Illinois borrowers frequently experience problems with their student loan servicers. Specifically, borrowers in Illinois have complained to her office that their loan servicers failed to inform them of affordable repayment options, follow borrower payment instructions and answer questions consistently.

Senate Bill 1351 would create a Student Loan Bill of Rights to protect student loan borrowers by prohibiting student loan servicers from misleading borrowers and requiring that they:

• Properly process payments;
• Require specialists to provide and explain to struggling borrowers all of their repayment options, starting with income-driven plans; and
• Inform borrowers who may be eligible to have their loans forgiven due to a disability or a problem with the school they attended.

The bill would also create a Student Loan Ombudsman in the Attorney General’s office and require student loan servicers to obtain a license to operate in Illinois.

Learn more in the ConsumerAffairs Student Loan Buyers Guide.

Former students at schools once operated by Corinthian Colleges may be getting some relief from student loans left over from their days at the failed schools.

Letters are going out to thousands of students around the country, explaining their potential eligibility to cancel federal student loans used to attend schools operated by Corinthian Colleges, including Everest Institute, Everest College, Everest University, Heald College, and WyoTech. Lists of the affected campuses, programs, and dates of enrollment are available here and here.

For-profit Corinthian Colleges abruptly ceased operations in 2015, transferring some of its campuses to a nonprofit called Zenith Education Group. The U.S. Department of Education then found that while it was operating, Corinthian Colleges made widespread misrepresentations between 2010 and 2014 about post-graduation employment rates. 

“We want people to know about this opportunity,” Ohio Attorney General Mike DeWine said. “If you qualify for this program, apply through the U.S. Department of Education, and get your federal student loan canceled, you won’t have to make additional payments on the loan, and you’ll be refunded for payments you already made.”

Ohio is one of 44 states and the District of Columbia that have arranged for a special “streamlined” process to discharge federal student loans.

However, any student who attended Corinthian Colleges and believes that the school lied about job prospects, the transferability of credits, or other issues may also apply to have their federal student loans canceled using the U.S. Department of Education’s universal discharge application at borrowerdischarge.ed.gov.  More information is available at studentaid.ed.gov/borrower-defense.

Continue making payments

It may take time for the U.S. Department of Education to process applications, so any borrowers who apply for loan discharge should continue making payments on the affected loans until they are informed by the U.S. Department of Education or by their loan servicer that their federal loans have been canceled or that the loans are in forbearance while their application is pending.

DeWine also reminded borrowers to beware of student loan scams. Borrowers can apply for loan forgiveness or find related information for free through the U.S. Department of Education. Requests for application fees or offers to cancel student loans in exchange for advance payments may be scams.

Earlier this month, the Department of Education took a big step towards deregulating the student loan repayment process. Under new Secretary Betsy DeVos, the agency rolled back guidelines designed to protect student loan borrowers by directing federal agencies to judge student loan servicers based on their past records when issuing new contracts.

DeVos said that the decision was meant to shore up “shortcomings” that put an undue burden on student loan servicers and led to “deficiencies in service,” but critics immediately called the notion preposterous and said that the rollback rescinded commonsense consumer protections that had led to a higher level of service for borrowers.

It seems that many attorneys general agree with that assessment. In a letter delivered yesterday, attorney generals from 21 states sent a letter to DeVos expressing their concern and discontent with the Department’s decision.

“We, the undersigned Attorneys General . . . write to express our profound concern regarding the Department of Education’s revocation of critical student loan servicing reforms. The memoranda withdrawn by the Department on April 11, 2017 provided guidance designed to reform the student loan servicing industry in order to protect student loan borrowers and help these borrowers find affordable ways to repay their debts and avoid default,” the letter reads.

“At a time when the need for common-sense federal student loan servicing reforms is undeniable, the Department’s decision to roll back essential protections imperils millions of student loan borrowers and families.”

“Abdicating its responsibility”

The AG’s point out that the guidelines allowed student loan borrowers to manage their loans, save money, and make informed decisions about their repayment options. However, with their repeal, the AG’s say that consumers have become “mired in ambiguity and inconsistency that the servicing reforms were intended to prevent.”

The letter points to several cases where consumers were misled or misguided by servicers, including recent cases brought against ACS Education Services in Massachusetts and Navient in Washington and Illinois. “Investigations and enforcement actions undertaken by the state attorneys general have repeatedly revealed the havoc that student loan servicers’ poor practices and servicing failures wreak on the lives of borrowers,” the AG’s said.

In summation, the AG’s say that one of the primary roles of the Department of Education is to create and enforce standards that protect student loan borrowers, but they believe that the recent actions go in the opposite direction and ultimately fail consumers.

“The Department’s stated rationale does not justify summarily denying student borrowers basic protections. . . The guidance revoked by the Department was expressly designed to protect borrowers and correct pervasive student loan servicing failures that harm student loan borrowers and their families. By revoking these critical protections, the Department has abdicated its responsibility to student loan borrowers.”

“We urge you to reconsider immediately,” the letter concludes.

The letter was signed by the attorneys general of Massachusetts, Illinois, California, Connecticut, Hawaii, Iowa, Kentucky, Maine, Maryland, Minnesota, Mississippi, New Mexico, new York, North Carolina, Oregon Pennsylvania, Rhode Island, Vermont, Virginia, Washington, and the District of Columbia, as well as by the executive director of the Office of Consumer Protection of Hawaii.

A full transcript of the letter can be found here.

The Trump administration is rolling back more new regulations put in place by its predecessor. The Department of Education has withdrawn guidelines designed to inject more transparency into the student loan repayment process.

Specifically, Education Secretary Betsy Devos withdrew two sections of guidance that had been put in place last summer. The guidance directed federal agencies to judge student loan servicers based on their past record when considering them for new contracts. For example, if there were a lot of unresolved grievances, the servicers would get less consideration for new work.

The Consumer Financial Protection Bureau (CFPB) enacted the rule last year to protect borrowers in their dealings with loan servicers who were working under U.S. government contracts.

New rules were 'shortcomings'

In a brief memo to the head of Federal Student Aid (FSA), Devos said she was taking the action because the new rules had shortcomings that could impede the department's efforts to make sure borrowers "do not experience deficiencies in service."

"We have a duty to do right by both borrowers and taxpayers, and I look forward to working with your team at FSA, as well as others, in order to acquire new federal student loan capabilities that will provide borrowers with the tools necessary to efficiently repay their debt," Devos wrote.

Critics respond

Critics immediately pounced on the news, disputing the idea that the guidance places any undue burden on loan servicers. Americans for Financial Reform said Devos' action will result in the opposite of her stated goals.

"The decision to rescind the July 20, 2016 memo rolls back commonsense consumer protections, such as requirements that servicers provide a higher level of service to the borrowers most at risk of default," the group said in a statement.

It's the second reversal for student loan borrowers in recent weeks. In late March, The New York Times reported thousands of borrowers who took advantage of a program, where they traded years of work in the public sector for some student loan forgiveness, were now in limbo.

The Times reported a legal filing by the Department of Education cast doubt on whether some of the agreements with people enrolled in the program were actually binding.

The Trump Administration is rolling back an Obama initiative that gave some breathing room to consumers who fall behind on student loan repayments. 

In its first major policy decision on student loan issues, the U.S. Department of Education is giving lenders the right to charge a 16% fee to borrowers who enter a loan rehabilitation program within 60 days after defaulting on their debt.

Consumer advocates say the move will do nothing to address a wave of defaults.

“The Administration’s first move on the student loan default crisis will do nothing to stop the tidal wave of defaults that is sweeping across the nation,” said Rohit Chopra, Senior Fellow at the Consumer Federation of America and the former Student Loan Ombudsman at the Consumer Financial Protection Bureau. “With more than 3,000 Americans defaulting on a student loan every day, this just adds insult to injury.”

The action applies only to borrowers who took out loans from banks and other institutions, not Federal Direct Loans. It potentially affects about 7 million people who owe approximately $162 billion. 

Advocates object

Sen. Elizabeth Warren (D-Mass.) and Rep. Suzanne Bonamici (D-Ore.) protested the action, saying the 16% fee "is enormous and results in an unnecessary financial burden on vulnerable borrowers."

"Congress gave borrowers who default on their federal student loans the one-time opportunity to rehabilitate their loans out of default and re-enter repayment. It is inconsistent with the goal of rehabilitation to return borrowers to repayment with such large fees added," they said in a letter to Education Secretary Betsy DeVos.

The case grows out of a lawsuit against United Student Aid Funds (USA Funds) that challenged the collection costs. In that case, borrower Bryana Bible was charged $4,547 in collection costs after defaulting on a student loan in 2012. The company assessed the fees even though she had signed a rehabilitation agreement that set a reduced payment schedule. 

Education Department officials sided with Bible and USA Funds sued the department in 2015. USA Funds later agreed to pay $23 million to settle a class-action lawsuit that grew out of the Bible case, although it did not admit any wrongdoing. 

Last week, the Consumer Federation of America released an analysis that showed that 1.1 million Americans defaulted on a federal student loan in 2016. Americans are now in default on $137 billion in federal student loans.

Consumer groups that have campaigned against the payday loan industry are celebrating, claiming that Google has taken down over five million ads for payday loans since last July.

In the middle of last year, Google announced it would ban all ads for payday loans, since many lenders had turned to the internet to get around state laws limiting their activity.

Google announced the ban in May and implemented it July 13. It specifically affects ads for loans that require repayment within 60 days and ads for loans with an annual percentage rate (APR) of 36% or higher.

Facebook already has a ban on payday loan ads, but Yahoo and others still accept them. Consumers will still be able to find payday loans by conducting a Google search.

Coalition of consumer groups

Even so, Americans For Financial Reform, Center on Privacy & Technology, Center for Responsible Lending, Leadership Conference on Civil and Human Rights, National Consumer Law Center, National Council of La Raza, Open MIC, and Upturn lauded the results.

The groups cite a report from Google showing that five million payday loan ads have been taken down so far. And that's just a small percentage of the ads the company says it removed last year.

"In 2016, we took down 1.7 billion ads that violated our advertising policies, more than double the amount of bad ads we took down in 2015, Scott Spencer, Director of Product Management, Sustainable Ads, wrote in a blog post. "If you spent one second taking down each of those bad ads, it’d take you more than 50 years to finish. But our technology is built to work much faster."

Weight loss cures and fake diplomas

The offending ads included those that offer miracle weight loss cures or sell items like fake diplomas and plagiarized term papers.

“We greatly appreciate Google’s recognition that payday loans are dangerous, trap consumers in a spiral of debt and serve no useful purpose for consumers," the consumer groups said in a joint statement. "By blocking these ads, they have protected countless consumers and more companies should follow Google's lead."

As important as Google's action is, the groups took the opportunity to give a shout out to the besieged Consumer Financial Protection Bureau (CFPB), noting that it has proposed regulations that, if finalized, would protect consumers from abusive lending practices.

Teachers who say they are victims of "legalized theft" are getting a little help in the form of a lawsuit that challenges the wrongful conversion of federal grants into delinquent loans.

The U.S. Education Department, which sponsors the TEACH Grant program, has ignored the problem, as has the Pennsylvania state agency that services the grants and the Congressional representatives who might have been expected to come to their constituents' aid.

The case involves David West, a teacher in Lexington, S.C., and Ashley Ford, a special-ed teacher in Kent, Ohio. Both volunteered to teach in high-needs schools for four years in exchange for grants of a few thousand dollars during their college years.

But because of minor errors on their annual renewal forms, their grants were converted to delinquent loans complete with past-due interest and penalty payments.

"This is an advertised federal program to help people become teachers. In reality, it's a for-profit scam," said West.

"For-profit scam"

The issue first came to light in October 2015 when ConsumerAffairs wrote about West's case. West, who applied for a TEACH grant while he was a student at the University of South Carolina, got a $4,000 grant and took a job teaching visual arts at White Knoll High School in Lexington, S.C., a subject and school that met the TEACH criteria. 

Things were fine the first two years, but at the beginning of his third year, West was tripped up by paperwork.

"I had the form filled out completely with all relevant information, also signed by my school's principal certifying everything. I submitted the form on time to them, but I overlooked a spot on the back of their dense form that required my signature," West told ConsumerAffairs in 2015.

"They sent me a letter saying I had 30 days to complete and resubmit the form, but I didn't receive this letter until about two weeks into that 30-day period.  I sent the form to my principal's secretary," he said. "When I resubmitted the form via fax, it was at most two days past their deadline. I never imagined that such a seemingly innocuous administrative oversight would end up costing me $4,000 plus interest."

West was quickly informed that his grant had been converted to a loan -- a delinquent loan at that -- and he began receiving demands for payment from FedLoan Servicing, a contractor to the Education Department. 

West was infuriated and has since stopped making payments and is now being threatened with garnishment of his wages. 

Ashley Ford's problems began when she was on maternity leave. She fell behind in her paperwork and her $7,000 grant was converted to a delinquent loan with nearly $2,000 of accrued interest.

Doing the job

Both West and Ford note that they are doing what they agreed to do -- teaching in "high-need" schools -- generally schools that are in low-income areas and have trouble attracting top teaching talent. Their only error was in being late with routine paperwork.

An investigation by the Government Accountability Office later found that 2,252 recipients had their grants mistakenly converted to loans from August 2013 through September 2014, the Washington Post reported. 

The case illustrates what critics say is the sloppy, even negligent, way in which the government handles programs that affect individual citizens. It also illustrates the complete indifference with which government agencies and elected officials respond when informed of such problems.

The Education Department, for example, has never responded to any of the inquiries made by ConsumerAffairs since October 2015. Sen. Lindsay Graham (R-S.C.) -- a constant and voluble commenter on all matters political -- was no help. "The response I received basically parroted the rationale FedLoan Servicing is providing for converting this grant into a loan. It seems they called on my behalf and just relayed to me what FedLoan Servicing told them," West said.

Rep. Joe Wilson refused to help because, although White Knoll High is in his district, West lives in Rep. Jim Clyburn's district. Clyburn's office didn't respond to a request for comment.

Can't sue City Hall

As West and others quickly learn, government agencies not only are aloof and often completely unresponsive, they also enjoy a certain immunity from lawsuits. 

The agencies that administer and service the TEACH grants are the usual alphabet soup. Most directly responsible is something called PHEAA -- the Pennsylvania Higher Education Assistance Agency and its subsidiary, FedLoan A quasi-public agency, PHEAA says its "earnings are used to support its public service mission and to pay its operating costs, including administration of the Pennsylvania State Grant and other state-funded student aid programs." 

A PHEAA spokesman, Keith New, said back in 2015 that he could not comment on the teachers' complaints. "We are just a contractor to the Department of Education. We have been instructed that all media inquiries must go to them," he said. Inquiries to the Education Department, in turn, went unanswered.

Just a contractor it may be, but PHEAA is very much a creature of Pennsylvania state government. Most of its 20 board seats are held by sitting members of the state legislature, who have remained blithely above the fray.

Columbus, Ohio, attorney Troy Doucet is representing West and Ford and is seeking class action status to include others who have been victimized by what West has called "legalized theft." Doucet says PHEAA makes more money servicing loans than servicing grants.

"Fedloan’s actions of converting grants into interest-bearing loans is unacceptable," said Doucet in a blog posting. He was not immediately available for further comment.

Many students heading for college will be rushing to get their applications in next month ahead of deadlines, but they should also be thinking about financial aid at the same time.

This is the first year that aid requests are being considered three months earlier than in the past, and since aid is dispensed on a first-come, first-served basis, if you wait too long you could get left out.

To avoid missing out, Paula Craw—director of outreach and financial literacy for ECMC—is advising families to take advantage of the holiday lull to file their aid forms – known in education jargon as the FAFSA Form – without delay.

Craw says there are five things families should know to improve their chances of getting financial aid.

Procrastination is costly

Colleges and universities tend to hand out aid to the first students who apply for it. They don't hold it back since they don't know how many applications they will receive. With the earlier start to the application season, the funds will likely go sooner than in years past.

Craw cites one survey of colleges showing they've already received 32% of the FAFSA forms filed during all of last year.

Don't make assumptions

Families often make a big mistake by assuming they are too well off to qualify for financial aid. That's not always how it works, and many middle and even upper-middle income families get college aid each year.

There are a number of different factors that determine eligibility, including assets and number of household members currently attending college. You might not qualify for federal aid, but a lot of colleges rely on the FAFSA Form when they hand out their own scholarships.

You don't have to be class valedictorian

If you're applying to college you should have good grades, but they don't have to be outstanding. Most of the federal and state college aid packages focus more on need than merit.

Merit is certainly a powerful factor when it's on your side, but remember that in most cases you only need to maintain a “satisfactory” GPA to continue receiving aid dollars.

Don't be scared by the sticker price

Make no mistake, college is expensive, but don't let a college's posted tuition rate scare you off. Just like a car dealer, colleges will make a deal, putting together financial aid packages that can, in some cases, drastically lower the actual tuition cost.

Don't pass up the college of your choice until you can figure out what it will really cost.

It's an annual process

If you're a returning college student, don't assume last year's FAFSA Form will cover you this year. It doesn't automatically renew – you have to fill it out each year.

But to simplify the process, if you submitted the form last year you have the option of filling out a Renewal FAFSA, in which most of the questions are answered with last year's information.

While rising college loan balances remain a cause of concern, there is a bit of good news. The number of students using private loans from commercial financial institutions has declined while the number of those opting for federal loans has risen.

A study conducted for the National Center for Education Statistics (NCES) found that private student loans fell by 50% from 2008 to 2012.

The distinction is an important one. Private loans are different from federal loans because they're made by banks, credit unions, and other commercial institutions and are not federally guaranteed.

They tend to be like other commercial loans, with terms usually based on market conditions and the borrower's credit history.

Just another consumer loan

Like other consumer loans, the lenders set the terms and conditions of the loan, usually basing them on the market and the borrower’s credit history. Federal loans generally have terms that are more advantageous to the borrower.

According to the research, private loans only accounted for 5% of undergraduates in 2004 but surged to 14% by 2008. It then dropped to 6% in 2012.

At the same time, the percentage of students taking out federal loans through the Stafford program increased from 35% to 40% over the same period.

It's probably no surprise that private loans dropped sharply after 2008, since the credit crisis hit with full force late that year. Lending standards tightened and banks and financial institutions made fewer loans for any purpose.

Better off with federal loans

“Generally private loans have stricter terms and harsher penalties for non-payment than federal loans do,” said Jennie Woo, Ed.D., lead author and a senior education researcher at RTI, which conducted the study. “Students who are eligible for federal loans are better off getting them instead.”

The study focuses on one possible reason so many consumers are struggling with college loan debt. The proportion of borrowers who took out private loans was highest at private for-profit schools, especially in 2008. These schools tend to be among the most expensive, and some – like Corinthian and ITT – have closed their doors, stranding students with the highest loan balances and the least favorable terms.

The Consumer Financial Protection Bureau (CFPB) advises students to always choose a federal loan if possible. It points out that the interest rate on a federal loan is fixed, while the rate on private loans often fluctuates.

The Consumer Financial Protection Bureau (CFPB) has some dire warnings for consumers trying to clean up their student loans. It says one in three borrowers who have rehabilitated their status could be driven back into default because of gaps between student loan programs.

“The consumer protections promised under federal law should make it nearly impossible for the most vulnerable consumers to be trapped in default,” said CFPB Director Richard Cordray. “Today’s report shows that far too many of these borrowers continue to fall through the cracks of a flawed student loan system."

The report, prepared by the CFPB's student loan ombudsman, examines debt collection and servicing problems plaguing the federal programs designed to help millions of defaulted student loan borrowers get on track and into affordable repayment plans.

The Bureau estimates that the breakdowns along the path out of default will cost borrowers hundreds of millions of dollars, including over $125 million in unnecessary interest charges over the next two years. The bureau is calling for an overhaul of these programs in order to help improve the recovery process for distressed consumers.

“Too many student loan borrowers are being left behind due to breakdowns in the federal programs designed to provide them a fresh start, including an affordable monthly payment and a path to long-term success,” said CFPB Student Loan Ombudsman Seth Frotman. “This report offers further evidence that industry practices and needless red tape can turn a student loan into an unbearable burden. Policymakers should work to reform the programs that are failing those borrowers that need help most.”

Student debt has grown markedly over the last decade, with about 44 million Americans now owing roughly $1.4 trillion, most of it from federal loans. It's estimated that more than 8 million borrowers haven't made a payment in at least 12 months and have fallen into default.

Besides costing taxpayers money, defaulting causes problems for the borrower, including wage garnishment, loss of federal benefits, and negative credit history.

"Rehabilitation" process

Federal law gives most borrowers in default the right to “rehabilitate” their loan – a process for borrowers to get out of default and get back on track by making a series of payments, which can be set based on income, to a debt collector. 

But consumers have complained to the CFPB about every step of the process for getting out of default and into an affordable repayment plan. They borrowers report a range of debt collection and servicing breakdowns across these programs.

What to do

While the CFPB is pressing for improvements to the rehabilitation program, it offers advice that can be used now by borrowers trying to retire their loans. The Repay Student Debt tool helps borrowers get unbiased tips on how to navigate student loan repayment, along with other sample letters they can send to their student loan servicers.

More information can be found at: consumerfinance.gov/students. 

Once you take out a student loan, you have to pay it back. It can't be discharged in bankruptcy, for example.

But there is one scenario where you might be able to walk away. The law allows consumers to discharge some student loans if the school they were attending closed its doors.

It happened last year when Corinthian Colleges shut down, and more recently when ITT went under. As we reported just a few weeks ago, students who were attending ITT when it closed and had not completed a degree program may be able to cancel their student loans by applying for a student loan discharge.

So Sen. Elizabeth Warren (D-MA) was not pleased when she learned that the U.S. Department of Education was working to collect loans from former Corinthian students who might have otherwise been eligible to cancel their debts.

Troubling new data

"These troubling new data suggest that instead of focusing on getting these students the relief they are entitled to under federal law, the Department's student loan bank - working with its loan servicers and debt collectors - is instead intentionally collecting on debt that it knows may be eligible for discharge," Warren wrote in a letter to Secretary of Education John King.

Warren says the evidence suggests that, instead of helping borrowers who might be eligible to discharge their debt, the government is assisting debt collectors who she said are hounding former students for money they might not owe.

The lawmaker said she received information provided by the Department of Education that showed only a small number of former Corinthian students have been able to discharge their student loan debt. But she says it appears as though some 80,000 former students might be eligible for the relief.

Instead, she says most of these students have had tax refunds and other government benefits seized. She suspects many of these former students are unaware of their rights.

Adding insult to injury

"Instead of adding insult to injury for tens of thousands of Corinthian victims by pushing scores of them into debt collection, the Department of Education should stand up for these students as it has promised to do for more than a year and immediately halt all collections on this debt," Warren wrote.

Warren says the government agency should use its existing authority to discharge Corinthian borrowers' debts and make sure that no other students are being hounded for debts they don't owe.

Who's eligible

If you attended Corinthian or ITT using Direct Loans, Federal Family Education Loan (FFEL) Program loans, or Federal Perkins Loans and were enrolled when the school closed, you may be eligible for relief.

First, contact your loan servicer about the application process to discharge a loan. The Consumer Financial Protection Bureau (CFPB) says you may also need to contact your school to obtain your academic and financial records.

You may also need to contact the licensing agency in the state where you attended school to get help in acquiring those records. The documents may help support your discharge claim.

You can get more information about that here.

It's been a rough week for students at ITT. On Tuesday they learned their school was closing its doors after the U.S. government cut off the flow of federal funds.

Students who just started a new term suddenly had to find an education alternative. Worse still, many were stuck with student loans.

Fortunately, there may be some options. The Consumer Financial Protection Bureau (CFPB) reports ITT students who were attending ITT when it closed and had not completed a degree program may be able to cancel their student loans by applying for a student loan discharge.

Who's eligible?

Students may be eligible for a complete discharge of Direct Loans, Federal Family Education Loan (FFEL) Program loans, or Federal Perkins Loans if they were enrolled when the school closed, or the school closed within 120 days after they withdrew.

The first step is to contact your loan servicer about the application process to discharge a loan. CFPB says you may also need to contact your school to obtain your academic and financial records. CFPB suggests contacting the licensing agency in the state where you attended school to get help in acquiring those records. The documents may help support your discharge claim.

You can get more information about that here.

You can't transfer the credits

There's another thing to consider. If you are successful in discharging your student loans, you won't owe the money you borrowed to pay ITT, but you won't be able to transfer any credits you earned there either. Essentially, you'll be starting over.

However, that might prove to be a good option since it is highly likely you'll be able to pursue the same course of study at a community college, or online public school at much less cost. In July, we reported on a new program allowing employees of National Federation of Independent Businesses member companies to pursue a degree for $3,000 a year.

Private loans may be a problem

If you were attending ITT using private student loans, you'll find your options are more limited. In most cases, you'll have to pay it back. However, CFPB notes that some states have programs to assist students with private student loans in their college shuts its doors.

The U.S. Department of Education barred federal funds from being used at ITT because it said the for-profit school was not in compliance with accrediting criteria and probably would not be able to get in compliance. Secretary of Education John B. King Jr. said the department acted out of its responsibility to both students and taxpayers.

Since skyrocketing student loan debt became a major cause for concern, there has been some debate on the value of an expensive college education. Higher education, quite understandably, insists it pays off in the long run.

But what do the people who took out the loans and are saddled with the debt think? Reveal from the Center for Investigative Reporting, partnering with Consumer Reports, did ask, and has compiled a report based on interviews with a representative sample of people with student loan debt.

Despite the contention, and plenty of data backing it up, that a college education results in a lifetime of higher earnings, a surprising number of the students in the survey aren't buying it.

Of those out of college but still paying off student loans, 45% said their college education was not worth the cost. Drilling deeper into that group, the survey found 38% of them did not graduate.

In addition, 69% said they have had trouble making loan payments. Seventy-eight percent earn less than $50,000 a year. And perhaps most telling, 43% did not get help or advice from parents when they made financial aid decisions.

High-impact debt

The Consumer Reports survey found that once students leave college, their loan debt makes itself felt in a variety of ways. The survey found 44% had to adjust their day-to-day living expenses while 37% said they put off starting a retirement savings plan or other financial goals.

It's also affected the real estate market, with 28% saying it had caused them to delay buying a house and 12% said they postponed marriage. Fourteen percent said they even changed careers because of their student loan debt.

Advice

The report concludes with some advice for students and parents on how to avoid student loan traps. It starts with having a candid family talk about goals and objectives. Having a plan is key, since only 39% of college students graduate in four years. Changing majors is costly, since it usually results in another year or two of expensive education.

Also, the report advises students and parents to nail down the actual cost of college. This can be tricky, but we reported a couple of years ago about a free app called College Abacus. It's a net cost calculator that can help students arrive at the net cost of college for each particular school being considered.

Finally, look at all options for reducing costs. Completing the first two years of college at a community college will save money. So will studying abroad. And working for a company that will pay your tuition while you work could result in graduating with no student debt at all.

The epidemic of student debt has led to any number of bogus debt relief schemes. The Federal Trade Commission (FTC) and the state of Florida last week took action against two allegedly phony student debt relief schemes, and defendants in a similar FTC action filed earlier this year have agreed to get into another line of work.

“The FTC is not going to stand on the sidelines when it uncovers evidence of fraudsters targeting students,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Consumers should be wary of any company that claims it can eliminate or greatly reduce debt, especially if they ask for money in advance.”

Federal and state agencies are powerless, however, to combat such government-sanctioned frauds as the U.S. Education Department's TEACH Grant program, which recruits young teachers to take assignments in troubled schools, then routinely converts their grants to loans, claiming administrative errors.

Teachers stuck paying wrongful debts call the program "legalized theft." Federal bureaucrats and elected officials know about the problem but have done nothing. 

The private-enterprise schemes are more easily dealt with.

"These latest joint actions will help protect Floridians, as well as many across the country, from these companies’ unscrupulous debt relief operations and ensure that those responsible will be held accountable,” Florida Attorney General Pam Bondi said.

Consumer Assistance Project

The FTC and Florida charged that the Consumer Assistance Project lured borrowers with promises such as “GET RID OF YOUR DEBT TODAY!” and then charged illegal up-front fees -- typically $250, plus monthly fees of up to $303 -- for as long as 36 months.

According to the complaint, the defendants pretend to evaluate these consumers for eligibility and then tell them they qualify for government student loan forgiveness programs that will reduce their debt by at least 50 to 70 percent. In reality, the FTC alleges, consumers are not likely to meet the strict requirements of these loan forgiveness programs.

Student Aid Center

In the second case, the Student Aid Center Inc., and its owners allegedly enticed people with promises such as “Get Your Student Loans Forgiven Now!” and “$17,500 in Up Front Forgiveness?”

Student Aid Center also told consumers they were “approved” or “pre-approved” for loan forgiveness or lower monthly payments, which they could get by paying up-front monthly fees, typically $199 or more for five months.

The defendants’ websites, including studentloanforgiveness.org, included more false claims, and their telemarketers deceived people with false promises of a 100 percent money-back guarantee, the complaint alleges.

Attorneys general in Washington and the District of Columbia have also filed actions against Student Aid Center.

Good EBusiness

In a separate case, the operators of another student debt relief scheme have agreed to a settlement with the FTC that will permanently ban them from the debt relief business.

The FTC alleged that Tobias West and his wife, Komal West, the owners of Good EBusiness, Select Student Loan Help LLC, and Select Document Preparation Inc., charged consumers up-front fees of $500 to $800 based on phony claims that they could renegotiate, settle, or alter payment terms on student loan debt.

In addition, the FTC charged that two of the defendants deceptively marketed home loan and student modification services under the name “AAP Firm,” illegally charging advance fees ranging from $1,000 to $5,000.

At last estimate, about 43 million Americans – mostly young – owed student loans totaling more than $1.3 trillion.

Paying back that money has strapped many consumers, just at the time they are forming households and should be making key purchases, such as homes and cars.

What is important for these borrowers to understand is that they have options when it comes to paying back the money. There is no one-size-fits-all payment plan.

Payback Playbook

To help student loan borrowers understand their range of options, the Consumer Financial Protection Bureau (CFPB) has assembled a Student Loan Payback Playbook, a set of disclosures that can guide borrowers to finding a payment plan that minimizes financial stress.

CFPB Director Richard Cordray says millions of borrowers are falling behind on their student loan debts, probably unaware that federal law gives them the right to an affordable payment. Working with Illinois Attorney General Lisa Madigan and others, Cordray says the CFPB developed a way to make sure student loan servicers provide personalized information to each borrower.

“This will help these borrowers take action, stay on track, and steer clear of financial distress,” Cordray said.

The Department of Education has several repayment plans that afford student loan borrowers with tailor payments that work within their monthly budgets. For example, one plan lets borrowers specify their own payments, based on income.

High default rates

Despite the availability of these repayment options, many borrowers continue to struggle. The CFPB says 25% of student loan borrowers are either behind on their payments or are in default.

The agency believes that part of the problem is a lack of awareness among borrowers that they have options. A recent Government Accountability Office (GAO) study found that 70% of direct federal loan borrowers in default had incomes low enough to qualify for reduced monthly payments.

The Playbook evolved from work begun last year to reform student loan servicing practices. In particular, the CFPB would like to enlist servicers in the effort to help borrowers understand their options, since there is already an established relationship.

The CFPB has taken regulatory action against some companies for alleged illegal student loan servicing practices.

This isn't the CFPB's first effort to inform borrowers of their rights. Last year the agency announced its Revised Pay As You Earn (REPAYE) plan to allow five million more direct loan borrowers to cap their monthly student loan payment amount at 10% of monthly discretionary income.

The REPAYE Plan was an upgrade of the original Pay As You Earn Plan, while extending its protections to all student borrowers with direct loans.

This is the time of year when students and their parents begin taking out student loans in preparation for starting or returning to college next fall. It's a good time to pause and reflect on a few things, especially the fact that student loans cannot be discharged through bankruptcy. If you name is on the dotted line, you will have to repay every penny of the loan amount, plus interest.

This can have very unpleasant consequences for parents and students alike. We heard just this morning from Tim, who co-signed for his daughter's student loans, which now total more than $180,000. 

"I will never retire at this point," Tim said. "I have been threatened by Navient (Sallie Mae) after my daughter was a day late paying her loans. They called me on that day and continued for five days while the payment made it through their system. I just don't know what to do. Everyone talks about how not to get into this situation. How about if you are already over your head in this situation?"

Sadly, there's not much Tim can do, except hope his daughter isn't majoring in art history. He can also learn about consolidating student loans here. For everyone not yet over their heads, there are steps you can take to maintain some semblance of financial health while seeking a higher education.

Be frugal

The most obvious way to hold down debt is to live at home and attend a community college for two years. In many states, students who successfully complete two years of community college are automatically granted admission to four-year state schools and can complete their education there. Avoid for-profit colleges, which generally charge more and deliver less.

There is also the little matter called working. It used to be fairly normal for college students to work part-time. While this may result in lost sleep and socializing, it can also result in sharply reduced debt later in life.

Scholarships and grants can help relieve much of the cost of college for those who are diligent students. Be very careful with grants, though. Many -- even those promoted by the U.S. Education Department -- have been called "legalized theft" by students who did everything they promised but failed to cross a "t" or dot an "i" on the annual paperwork and found themselves facing an unanticipated debt.

Avoid scams

The college financial landscape is filled with scam artists. Students should be very cautious of private companies that charge for loan services that are available for free elsewhere.

It is not necessary to pay a private company to assist with student loan applications or consolidcations or to submit the Free Application for Federal Student Aid (FAFSA). In fact, anyone who is college-bound should be able to fill these forms out themselves, checking with their high school counselors if they need help.

Students should be sure they understand what they are signing. Loan documents mean what they say. Don't assume it will be easy to repay $100,000 or more after graduation. Large debts can be a lifelong burden.

Co-signers, like Tim, should be especially careful. It's one thing for a 22-year-old to be saddled with a six-figure debt. It's something else for someone who is 50 or 60 years old and may face an impoverished old age because of a child's student debt.

Presidential candidates may promise to forgive student loans, but wise consumers know they can't take those promises to the bank. 

Free advice

California Attorney General Kamala Harris recently issued tips to prospective students, including:

• Do not sign a loan document electronically without first reviewing and understanding the terms of the loan agreement.  Make sure to understand how much money is being loaned, the interest rate of the loan, and when the loan will need to be repaid.  Inquire about the available options if loan payments cannot be made on time.

• Be aware of the differences between federal and private student loans. Federal student loans may offer lower, fixed interest rates, while private student loans may have higher, variable interest rates.  Additionally, federal student loans generally do not need to be repaid until the student graduates, which may not be the case with private loans.     

• Beware of companies that charge an application fee and monthly fees for assisting with consolidating federal student loan debt.  Consolidating federal student loans is FREE through the Federal Direct Consolidation Program.

• Ask about the student loan’s grace period and be aware that the grace period may change depending on circumstances.  Engaging in active military duty, returning to school, and consolidating loans may alter grace periods. 
• Defaulting on student loans will adversely affect credit and will impede the ability to make purchases down the road.  It is important to stay in touch with student loan servicers, especially if there is a difficulty in making timely payments.

Follow these steps and you may avoid the financial morass Tim now faces.

Students at 91 former Corinthian College campuses in 24 states will have an clearer path to loan forgiveness, U.S. Education Secretary John B. King Jr. said today.

The action comes just one day after Corinthian was hit with a $1.1 billion judgment that may help provide additional relief to struggling ex-students.

The 91 campuses were identified as having the largest groups of borrowers eligible for loan relief by investigators from the Department of Education and state attorneys general.

The program is available to students who attended Everest and WyoTech colleges in these states: 

• California,
• Colorado,
• Florida,  
• Georgia, 
• Illinois,
• Indiana, 
• Maryland, 
• Michigan,
• Minnesota,
• Missouri, 
• Nevada,
• Ohio, 
• Oregon, 
• Pennsylvania, 
• Massachusetts,  
• New Jersey, 
• New York, 
• Texas,
• Utah, 
• Virginia, 
• Washington,
• West Virginia,  
• Wisconsin, and
• Wyoming.

If that includes you, you can apply for debt relief through a form posted here. The Department is reaching out to those students through postal mail, email, partner organizations and other means.

The DOE has approved loan discharges for more than 8,800 former Corinthian students nationwide, totaling more than $130 million.

"With a straw ..."

The DOE's efforts are not a raging success in the eyes of critics, however. One non-profit group, The Institute for College Access and Success (TICAS) said the debt relief program so far has been "like draining a swimming pool with a straw."

"Despite the Department’s outreach to date, few students are aware that debt relief is available.  Only a fraction of eligible Corinthian students have applied and less than three percent have been approved (with most approved because their school closed, not based on fraud), TICAS vice president Pauline Abernathy said in a statement.  

"It’s like draining a swimming pool with a straw -- even a streamlined application is an unnecessary barrier to the relief these students deserve because the Department has already determined that their school committed fraud," Abernathy said. "We urge the Department to provide automatic discharges to all groups of students covered by findings of fraud, rather than requiring them to submit individual applications."  

Placement rates

King made the announcement in Boston with Massachusetts Attorney General Maura Healey, who said her investigation found that Corinthian's two Everest Institute campuses in Massachusetts misrepresented their job placement rates.

"When Americans invest their time, money and effort to gain new skills, they have a right to expect they'll get an education that leads to a better life for them and their families. Corinthian was more worried about profits than about students' lives," King said.

Last summer, the DOE created a similar form for students at 12 Heald College campuses after fining the institution $30 million for misrepresenting job placement rates to current and prospective students. In November 2015, the department published additional findings of misrepresentation at 20 Everest and WyoTech campuses in California and Florida.

Students in other states may be eligible for debt relief as the investigations continue.

Consumers with student loan debt may have a new repayment option under a new Department of Education regulation that recently took effect.

The Revised Pay As You Earn (REPAYE) plan will allow 5 million more direct loan borrowers to cap their monthly student loan payment amount at 10% of monthly discretionary income, without regard to when the borrower first obtained the loans.

As the name implies, the REPAYE Plan improves upon the original Pay As You Earn Plan, while extending its protections to all student borrowers with direct loans.

Besides the monthly payment cap, REPAYE will wipe the ledger clean after 20 years for those who borrowed only for undergraduate study and 25 years for those who borrowed for graduate study. It also provides new protections against ballooning loan balances for borrowers whose income-driven payments can't keep up with accruing interest.

But before you rush to sign up, consider this.

Might not be a perfect fit

“Just because a new program is announced, it doesn’t mean that it is going to be a perfect fit for every borrower,” said Bruce McClary, spokesman for the National Foundation for Credit Counseling (NFCC). “It takes a clear understanding of the benefits available through each option and how those are applicable to a person’s unique circumstances.”

So, what does this new program mean, exactly, in dollars and “sense?” McClary says it could be substantial for consumers with huge student loan balances, struggling to make ends meet.

Discretionary income for this purpose is calculated as the difference between adjusted gross income, taken from the tax return, and 150% of the current poverty line. For this year, that payment would be 10% of what is earned over $17,655 divided by 12 months.

Here's an example; a person earning $30,000 a year would see payments capped at a budget-friendly level of about $102.88 a month.

Why now?

Policymakers are concerned that consumers struggling with student loan debt, many of whom are Millennials, are so financially stressed they can't afford other things – in particular, they are having a difficult time buying houses because they can't save for the down payment. This, in turn, is a strong drag on the economy.

But what really has policymakers worried is the upward trend in student loan defaults. Those defaults can have a long-lasting impact on a borrower’s financial well-being. A record of late or missed loan payments impacts a borrower’s credit history by making any new loan requests -- for cars or homes -- more expensive or just extremely difficult to qualify for.

There is a downside.

McClary says borrowers need to proceed with caution. For some, this new payment option might mean the monthly payment doesn't cover both interest and principal payments, which means the balance could keep growing.

That makes it harder to get other types of loans, from credit cards to mortgages, because the borrower’s credit capacity is tapped out.

Another risk? McClary says the lower monthly payment under REPAYE could lead the borrower to pay substantially more over the life of the loan when compared to a Standard Repayment plan.

More former Corinthian College students may be eligible for debt relief following an investigation by the U.S. Department of Education and California Attorney General Kamala Harris.

The investigation concluded that Corinthian's Wyotech and Everest programs misrepresented their placement rates, leading prospective students to overestimate their chances of getting lucrative jobs, encouraging them to take on large student debts that many are now unable to repay.

The findings from this investigation apply to Everest and Wyotech locations in California, as well as Everest University online programs based in Florida, and add to the existing findings concerning programs at Heald College, the agencies said in a joint news release.

The findings apply to Corinthian campuses that served approximately 85,000 Wyotech and Everest students. Earlier this year, the Education Department created an expedited debt relief process for Heald students who attended programs with misstated placement rates. The new findings will be referred to the administrator of the debt relief program.

Former Corinthian students can learn more about debt relief here. 

"Corinthian preyed on vulnerable students who are now buried under mountains of student debt," said Attorney General Harris. "Today's joint investigation findings will expand the pool of Corinthian students eligible for streamlined student loan relief options, helping them rebuild their lives and pursue a brighter future. I thank the Department of Education for joining my office to keep Corinthian accountable for their actions and providing debt relief to students who were misled."

The Consumer Financial Protection Bureau has won a $530 million default judgment against Corinthian Colleges, the defunct for-profit chain that has already declared bankruptcy and been liquidated.

“Today’s ruling marks the end of our litigation against a company that severely harmed tens of thousands of students, turning dreams of higher education into a nightmare,” said CFPB Director Richard Cordray. “We all have much more work to do before current and past students who were hurt by Corinthian’s illegal practices can be made whole. We remain deeply concerned about risks facing student borrowers in the for-profit space and will continue to be vigilant in rooting out harmful practices.”

A federal court entered the default judgment yesterday, resolving a lawsuit filed by the CFPB in September 2014.

The Bureau’s lawsuit alleged that Corinthian lured tens of thousands of students into taking out private loans to cover expensive tuition costs by advertising bogus job prospects and career services. Corinthian then used illegal debt collection tactics to strong-arm students into paying back those loans while still in school.

The court ordered that Corinthian was liable for more than $530 million and prohibited the company from engaging in future misconduct.

Company has been liquidated

Earlier this year, Corinthian Colleges filed for bankruptcy and was liquidated, making it unlikely the $530 million will ever be paid, although the CFPB said it will continue to pursue relief for consumers harmed by Corinthian’s unlawful conduct.

The CFPB said it "remains concerned about efforts to collect on loans made in association with Corinthian’s illegal conduct."   

In November 2014, the ECMC Group worked with the U.S. Department of Education to reach an agreement to acquire a substantial number of Everest and WyoTech campuses, which were owned by Corinthian. In February 2015, the CFPB announced that, through an action with ECMC, the Bureau secured hundreds of millions of dollars in forgiveness for borrowers who took out Corinthian Colleges’ high-cost private student loans.

Three federal agencies have issued guidelines to student loan servicers to help students repay their loans and avoid default.

The guiding principals from the Departments of Education and Treasury and the Consumer Financial Protection Bureau (CFPB) are designed to make sure borrowers are protected and have the information they need, even if they are struggling under the burden of their debts. It also is meant to provide ways to quickly resolve errors and hold federally-contracted companies accountable.

The guidelines say servicer policies should be consistent, accurate, accountable, and transparent.

Student loan debt has become an issue as outstanding loans now approach $1.3 trillion, saddling many recent graduates – not to mention those who left school before getting a degree – with significant debt as they start careers.

Types of loans

There are four main types of post-secondary education loans under which borrowers have outstanding balances. Direct Loans are federal loans made directly to borrowers by the U.S. Department of Education through the William D. Ford Federal Direct Loan program.

Federal Family Education Loan Program (FFELP) loans were originated by private lenders and guaranteed by the federal government.

Federal Perkins Loans, which are co-funded by institutions of higher education and the federal government, are originated and administered by participating institutions.

Private student loans are made by depository and non-depository financial institutions, states, colleges, and other entities.

Alternatives to loans

Finding alternatives to student loans has become a priority as college costs continue to rise. As we previously reported, College Abacus is a free online tool allowing students and families to calculate the amount of aid they qualify for when applying at more than 5,000 colleges and universities.

Now it has launched a new site, Pell Abacus, which it says will simplify and streamline the college search process for low-income students who are likely eligible for federal Pell Grants.

“By making this process simple to navigate without tax forms and accessible on mobile phones, we’re removing some of the key barriers preventing low-income students from exploring their full range of college options,” said Abigail Seldin, co-founder of College Abacus and vice president of Innovation & Product Management at ECMC Group. “Our goal with Pell Abacus is to not only streamline the college search process for underserved students, but to empower them by providing meaningful context around the most important financial factors impacting college choice, from personalized net prices to school-specific loan repayment information.”

The new Pell Abacus desktop site provides school-specific data on different financial factors, such as average loan payments for Pell students, the percentage of students who receive Pell Grants and the average monthly income percentage spent on federal loan repayments after college.

Pell Grants are government stipends that allow students, based on need, to pay for college. Grants, unlike loans, do not have to be repaid, making it a great alternative to student loans.

In a previous interview with ConsumerAffairs, Seldin said the College Abacus tool helps students access grant money, reducing the need for borrowing. Check it out here.

Community colleges are almost all state-supported and have always cost significantly less than four-year colleges.

So it was something of a surprise a couple of weeks ago when the Brookings Institution lumped community colleges in with for-profit schools as institutions where student loan recipients were most likely to default on their loans.

Admittedly, the much larger risk is for students at expensive for-profit schools, but the report's authors note, with some concern, that community college students taking out loans – and then defaulting – is a relatively new development.

The Association of Community College Trustees (ACCT) has dug deeper into community college student borrowing and repayment behavior. It has compiled a report using data from all 16 community colleges in Iowa to examine who borrows and who defaults.

Persistence and completion

"Our institutions are more focused on persistence and completion now than ever before," said ACCT President and CEO Noah Brown. "This report emphasizes just how important those factors are to post-enrollment success."

In their report, the Brookings researchers appeared to suggest that students attending non-selective schools – for-profit and community colleges have open enrollment, accepting all who apply – were most at risk of defaulting on loans. The ACCT report suggests it might be more complicated than that.

The report found that students who borrow the least amount of money, not the most, are more at risk of default. Many defaulting students take no action on their loans, suggesting the complexity of the repayment system and lack of information may be a contributing factor.

"For borrowers with less than $5,000 in debt, there are almost as many borrowers in default as those who are actively repaying their loan debt," said Jee Hang Lee, ACCT's vice president for public policy and external relations. "The solutions that we have for struggling borrowers, like public service loan forgiveness and income-based repayment, are geared toward middle-income earners with high debts. We need a policy solution for the students who borrow a little but still struggle to make the minimum monthly payment."

Who borrows and who doesn't

The more successful community college students don't borrow money; students who do so are more likely to drop out. Those who default on their loans are even more likely to not finish school with a credential.

Finally, community colleges have no easy way to share data that could help institutions address student loan defaults and better manage them.

"As institutional policymakers, Iowa's Community College Trustees recognize the value of using data to drive our decision-making process," said Cheryl Langston, Des Moines Area Community College trustee and Iowa Association of Community College Trustees board chair. "This report demonstrates how community colleges can be more reflective and forward-looking by understanding where we are doing a good job and where we need to improve to help our students be as successful as possible."

The report includes policy reform recommendations for colleges, as well as for Congress to incorporate into the Higher Education Act's reauthorization.

Student loan debt is about $1.2 trillion and growing, with not everyone who took out students loans able to pay them back.

Student loan default rates doubled between 2000 and 2011, according to Brookings Institution researchers who analyzed U.S. Department of Education administrative data on federal student borrowing, linked to earnings records derived from tax records.

Their report traces most student loan defaults to students who attended for-profit colleges and, to a lesser extent, community colleges. A common thread, the researchers found, was non-traditional students – typically older than the average student – and those attending “non-selective” institutions – schools that accept anyone – were most likely to default.

Weak educational outcomes

“These non-traditional borrowers were drawn from lower income families, attended institutions with relatively weak educational outcomes, and experienced poor labor market outcomes after leaving school,” the authors write.

At the same time, the authors contend students attending traditional public or private non-profit colleges were much less likely to default and have done better in the job market after graduation.

The finding that a significant portion of student loan defaults occurs among students attending for-profit schools is not exactly a new charge. Federal data released last year showed nearly half of the 650,000 federal student loan defaults between 2011 and 2013 were by students at for-profit schools.

Taking issue

Still, some for-profit schools are finding flaws with the Brookings study's conclusions. Mark Brenner, an Apollo Education Group executive, whose subsidiaries include University of Phoenix, told Marketwatch the Brookings study was based on “limited data.”

The Brookings study appears to suggest students who are not qualified to attend college – they choose schools that have no admission requirements – are the ones who take on too much debt and default. The authors say a relatively new development is community college students are defaulting on student loans. In the past, the report says, few of these students took out loans to pay for college.

Accounting for 70% of defaults

“By 2011 borrowers at for-profit and two-year institutions represented almost half of student-loan borrowers leaving school and starting to repay loans, and accounted for 70% of student loan defaults,” the authors write. “In 2000, only one of the top 25 schools whose students owed the most federal debt was a for-profit institution, whereas in 2014, 13 were.”

According to the report, the borrowers from those 13 schools owed about $109 billion—almost 10% of all federal student loans. And once out of school, they faced more difficult employment prospects.

For example, the researchers say the median borrower from a for-profit institution who left school in 2011 and found a job in 2013 earned about $20,900 a year. At the same time, 21% were unemployed.

By comparison, community college borrowers earned $23,900 and only 17% were unemployed.  

The attorneys general of 11 different states are urging the Department of Education to discharge the federal student loan debts of students whose for-profit schools were shut down for violating various laws – especially victims of schools that operated as part of the now-defunct Corinthian Colleges chain.

Yesterday, presumably in response to the DoE's stated intention of establishing a “clearer, more comprehensive” debt forgiveness program for defrauded students, Illinois Attorney General Lisa Madigan released a statement saying that she, “along with the Attorneys General of 10 other states, called on the U.S. Department of Education to cancel federal student loans in cases where schools have broken state laws, and to provide clear processes for students seeking relief.”

Granted, this is not exactly new news. Madigan and other attorneys general made a similar argument in April. “We must protect the victims of the predatory practices of for-profit schools such as Corinthian, which was more concerned with their profits than they were about the quality of education they provided,” she said in a letter released at the time.

She also noted that the DoE already has the legal authority to discharge the federally backed student loans of students who took those loans out to attend harmful, fraudulent schools such as Corinthian's.

Madigan's April letter, also endorsed by the AGs of California, Connecticut, Kentucky, Massachusetts, New Mexico, New York, Oregon and Washington, noted that the Higher Education Act, DoE's own regulations and federal student loan documents all make it clear that students can assert legal claims against schools as a defense to repayment of their loans.

First glance

And in early June, a month after Corinthian schools shut their doors and filed for bankruptcy protection, the Department announced a debt-relief program which, at first glance, appeared to be exactly what AG Madigan and her other-state colleagues asked for: a chance for student debtors to assert legal claims against their scammy schools as a defense against repayment.

Problem is, the DoE will not let students satisfy that requirement by merely pointing out “The entire chain of schools was shut down, my campus included, after years of constant legal troubles and multimillion-dollar fines which can all be summarized as 'the school violated multiple laws'.”

Instead, the DoE's plan required students to provide transcripts and other documents that are difficult if not impossible to acquire from an out-of-business school, and – as part of the “legal claims” assertion – answer some rather sophisticated legal questions which non-attorneys are unlikely to know, including “details about the conduct of the school that the borrower believes violated state law including, but not limited to: The state and applicable law or cause of action (if available); Specific acts (including failures to act) of alleged misconduct by the school ....”

So yesterday, Madigan and other attorneys general recommended that the DoE streamline and simplify this process in many ways, to “eas[e] the burden on students to obtain [debt] relief.”

Rather than the current Byzantine requirements set for Corinthian debtors seeking relief, the attorneys general recommend “To obtain relief, students should simply have to state how the school deceptively induced them to enroll or how the school engaged in other unlawful acts.”

Discharge in groups

Better yet, the DoE could discharge loans in groups, rather than individually: “The Department should provide a mechanism by which the loans of entire groups of students may be discharged. The Department also should accept findings or evidence from government entities on behalf of the students.”

In other words: rather than expect every individual ex-Corinthian student to personally make his or her own case for debt forgiveness, the attorneys general would rather have the DoE decide something more along the lines of “All federal debts attached to students enrolled at Corinthian's Scamville campus from [this date] through [that date] are forgiven.”

That's also why the attorneys are asking the DoE to “ensur[e] relief regardless of loan status …. [including] Direct loans, the Federal Family Education Loan Program loans, the PLUS program loans, and loans that have been consolidated into new debt. The Department should also make clear that students may recover amounts they already paid on Title IV loans.”

Students, parents, and public policymakers who are alarmed at the skyrocketing costs of college tuition are beginning to look a little closer at how colleges spend all that money.

Is it possible that spending a little less here and there might help rein in rising costs? Illinois legislators think so.

Earlier this month an investigative report by the Illinois Senate Democratic Caucus highlighted a series of lavish perks for top administrators at many of the state's public universities and community colleges.

The report found, among other things, one administrator at a public university received a compensation package totaling $887,244. Others received perks like car and driver services, as well as memberships to multiple country clubs and social organizations.

Executive compensation

“While tuition at Illinois’ public institutions has skyrocketed, so has executive compensation,” the lawmakers wrote. “This report finds that tuition increases have coincided with a dramatic increase in administrative costs, including the size of administrative departments and compensation packages for executives.”

The report focused most of its attention on the dramatic increase in size of college administrations, which the report characterizes as “sprawling behemoths.” But a general increase in spending on “upgrades” all across college campuses may highlight part of the problem of institutions out of touch with reality.

In a press release this week, Aramark, a company providing food services to 500 U.S. colleges, welcomed students back to campus, noting that “campus dining is out, campus culinary is in.”

Students want it all

“Long gone are the days of institutional food service where colleges were only expected to provide basic nourishment three times each day,” the company said in the release. “Today's Gen Z college students want it all – locally grown, sustainable, healthy, customizable, convenient and trendy – all at a good value.”

And Aramark is giving it to them. The company says it has installed “action cooking stations” offering made-to-order, customizable options. Students will use the action stations to create their own omelets, stir fry, pasta, and noodle and burrito bowls. The company says that means custom ingredients and flavors – everything from locally grown produce to a wide variety of spices, seasoning, and flavor profiles.

"We have almost 600 world-class chefs – supported by a team of dietitians and nutritionists -- dedicated to creating innovative and healthful culinary experiences for our astute college consumers," said Brent Franks, CEO for Aramark's Education business. "Our goal is to make sure students enjoy restaurant quality dining without ever having to leave campus."

You can't blame a service provider for providing what the customer will pay for, but it might not be a coincidence that generations that got through school on pizza and burgers at the student union also paid a lot less tuition.

Of course, this hasn't happened overnight. The New York Times noted in 2012 that colleges have been on a long “spending binge” to build the best of everything, with the goal of attracting students who want the best of everything.

In the end though, students end up paying for it. According to the College Board, the average tuition, room and board and fees for in-state students at public, 4-year colleges was $18,943 in 2014. Student loan debt is fast approaching $1.3 trillion.

In early June, a month after the Corinthian Colleges chain of for-profit schools ended years of legal battles (including charges of fraudulent lending, illegal debt-collection practices, lying about job prospects and educational quality, and worse) by closing its doors and filing for bankruptcy, the Department of Education announced that it would offer debt relief for Corinthian students.

The debt relief program was billed as part of an attempt to “ensure Americans are protected from unscrupulous colleges that deny students meaningful educational opportunities and leave taxpayers holding the bag.”

Under ordinary consumer-protection situations, such loan forgiveness would arguably be a no-brainer: if a company is shut down for fraudulent business practices, any outstanding customer debt based on such fraud would is often forgiven or reimbursement is paid to victims. 

But federally backed student loans (which, along with U.S. military veterans' educational benefits, provided the bulk of the school's profits) are different under the law: unlike most bad debts, they can't be discharged in bankruptcy. And from the money-lender's perspective, the loans are backed by the federal government – meaning, if a student can't or won't pay it back, the taxpayers are on the hook.

Relief plan condemned by critics

Hence the need for the Department of Education to announce a special debt relief program for the defrauded students of now-defunct schools.

Yet student advocates and other critics immediately condemned the DoE's plan as worthless if not worse: “a process that re-victimizes students as a solution to a problem they [the DoE] created,” as the Debt Collective put it at the time.

More specifically, the DoE plan required students to provide transcripts and other documentation which might be impossible to get (mainly because the school generating such documents is out of business and no longer exists).

Students applying for loan forgiveness also had to answer some rather sophisticated legal questions which few if any non-lawyers could manage, including “details about the conduct of the school that the borrower believes violated state law including, but not limited to: The state and applicable law or cause of action (if available)….”

But on Wednesday, the Department of Education said that starting next month, it will launch an “effort to better help defrauded students seeking debt relief,” and also “aim to create a system that makes sure that colleges–not taxpayers–are on the hook for wrongdoing.”

U.S. Education Secretary Arne Duncan was quoted as promising “a clearer, more comprehensive system to assist students who believe they were defrauded by their college.”

Little relief for the present

Unfortunately for students still struggling with the June debt-forgiveness regulations, the DoE press release lauding next month's planned effort at “better help” for “defrauded students” still ends with the following discouraging paragraph:

This regulatory process will not impact the ongoing debt relief efforts the Department outlined in June. Until these regulations are developed and put into effect, borrower defense claims will continue to be reviewed through existing processes and through those developed by the Special Master. Borrowers who believe they have valid claims for defenses to repayment can visit www.studentaid.ed.gov/Corinthian or call a special toll-free borrower defense hotline at (855) 279-6207 for more information.

So the new rules might not help any student victims of Corinthian's frauds, but they might, in the future, keep taxpayers off the hook the next time a school victimizes students in similar fashion.

Whatever the new improved rules are, DoE officials said they hope to have them in place by November 2016, and taking effect in July 2017. However, as the Washington Post noted, “Given the timeline, the rule could be subject to changes if a Republican takes the White House; the GOP has tried to block tougher regulations for for-profit colleges.”

Discover Bank and its affiliates are under fire from the Consumer Financial Protection Bureau (CFPB) for illegal private student loan servicing practices.

According to the agency, Discover overstated the minimum amounts due on billing statements and denied consumers information they needed to obtain federal income tax benefits. The company also engaged in illegal debt collection tactics, including calling consumers early in the morning and late at night.

The CFPB’s order requires Discover to refund $16 million to consumers, pay a $2.5 million penalty, and improve its billing, student loan interest reporting, and collection practices.

“Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits,” said CFPB Director Richard Cordray. “Illegal servicing and debt collection practices add insult to injury for borrowers struggling to pay back their loans.”

Discover Bank's student loan affiliates -- The Student Loan Corporation and Discover Products, Inc. -- are also charged in this action. Beginning in 2010, Discover expanded its private student loan portfolio by acquiring more than 800,000 accounts from Citibank.

As a loan servicer, Discover is responsible for providing basic services to borrowers, including accurate periodic account statements, supplying year-end tax information, and contacting borrowers regarding overdue amounts.

Huge debt market

Student loans make up the nation’s second largest consumer debt market. Today there are more than 40 million federal and private student loan borrowers and collectively these consumers owe more than $1.2 trillion. The market is now facing an increasing number of borrowers who are struggling to stay current on their loans.

Earlier this year, the CFPB revealed that more than 8 million borrowers were in default on more than $110 billion in student loans, a problem that may be driven by breakdowns in student loan servicing. While private student loans are a small portion of the overall market, they are generally used by borrowers with high levels of debt who also have federal loans.

According to CFPB, thousands of consumers encountered problems as soon as their loans became due and Discover gave them account statements that overstated their minimum payment. Discover denied consumers information that they would have needed to obtain tax benefits and called consumers’ mobile phones at inappropriate times to contact them about their debts.

Charges outlined

Specifically, the CFPB found that the company:

• Overstated the minimum amount due in billing statements
• Misrepresented on its website the amount of student loan interest paid
• Illegally called consumers early in the morning and late at night, often excessively
• Engaged in illegal debt collection tactics

Enforcement action

Among the terms of the consent order, Discover must:

• Return $16 million to more than 100,000 borrowers: Specifically, Discover will:

1. Provide an account credit (or a check if the loans are no longer serviced by Discover) to the consumers who were misled about their minimum payments in an amount equal to the greater of $100 or 10 percent of the overpayment, up to $500. About 5,200 victims will get this credit;
2. Reimburse up to $300 in tax preparation costs for consumers who amend their 2011 or 2012 tax returns to claim student loan interest deductions. For consumers who do not participate in this tax program or did not take advantage of earlier ones offered by the company, Discover will issue an account credit of $75 (or a check if their loans are no longer serviced by Discover) for each relevant tax year. About 130,000 victims will receive this relief; and
3. Provide account credits of $92 to consumers subjected to more than 5 but fewer than 25 out-of-time collection calls and account credits of $142 to consumers subjected to more than 25 calls. About 5,000 victims will receive these credits.

• Accurately represent the minimum periodic payment: Discover cannot misrepresent to consumers the minimum periodic payment owed, the amount of interest paid, or any other factual material concerning the servicing of their loans.
• Send clear and accurate student loan interest and tax information to borrowers: Discover must send borrowers the IRS W-9S form that it requires them to complete to receive a form 1098 from the company, and it must clearly explain its W-9S requirement to borrowers. Discover must also accurately state the amount of student loan interest borrowers paid during the year.
• Cease making calls to consumers before 8 a.m. or after 9 p.m.: Discover must contact overdue borrowers at reasonable times. This will be determined by the time zone of the consumer’s known residence or phone number, unless the consumer has expressly authorized Discover to call outside these hours.
• Pay $2.5 million civil penalty: Discover will pay $2.5 million to the CFPB’s Civil Penalty Fund.

For most college students, parents are a major partner. They help shape college choices, career paths, and are likely to help foot the education bill. So what parents have to say about the process matters.

A survey of parents by HSBC finds that parents are growing more pessimistic about higher education. Nearly three quarters of those surveyed – 71% – now believe higher education is unaffordable for the majority of Americans.

At the same time, almost two thirds – 60% – consider a college degree to be essential in enabling their children to achieve important lifetime goals.

No doubt skyrocketing tuition costs have fueled parental pessimism. The cost of a college education has risen many times faster than the rate of inflation over the last few decades.

Some critics of higher education have blamed the increased availability of student loans and financial aid, and a new report from the New York Federal Reserve Bank lends some ammunition to that argument.

Higher tuition and loan demand

“When students fund their education through loans, changes in student borrowing and tuition are interlinked,” the report concludes. “Higher tuition costs raise loan demand, but loan supply also affects equilibrium tuition costs—for example, by relaxing students’ funding constraints.”

The authors said they found colleges and universities more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes, with a sizable pass-through effect on tuition of about 65%.

“We also find that Pell Grant aid and the unsubsidized federal loan program have pass-through effects on tuition, although these are economically and statistically not as strong,” they wrote.

The analysis found that the subsidized loan effect on tuition is most pronounced for expensive, private institutions that “are somewhat, but not among the most, selective.”

Housing bubble parallels

The Fed report explores an interesting parallel between the rising cost of college tuition and the rapid increase in home prices during the housing bubble. It examines the argument that one big reason home prices escalated so quickly is because so many consumers had access to so much credit they were able to bid up prices beyond what was justified.

While noting there is little empirical evidence linking credit availability and rising tuition, the report notes that the two events occurred at about the same time.

“Yearly student loan originations grew from $53 billion to $120 billion between 2001 and 2012, with about 90% of originations in recent years occurring through federal student aid programs,” the authors write. “Against this backdrop of increased borrowing, average sticker tuition rose 46% in constant 2012 dollars between 2001 and 2012, from $6,950 to $10,200, resembling the twin house price and mortgage balance booms.”

Parents, meanwhile, are squeezed between daunting costs and the desire to see their children succeed. The HSBC survey suggests they will continue to go into debt to reach that goal. And the debt may spread across two generations.

Sixty-five percent of parents with children under the age of 5 expect that their children will personally contribute toward their own tuition, and 59% admit their child will need to take on debt in order to do that. Around 3 in 10 – 29% -- of parents surveyed whose children are yet to begin their college education anticipate that grandparents will also share the financial burden.  

Good news for former students of Corinthian Colleges, the now-defunct chain of for-profit schools that operated under the names Everest, WyoTech and Heald: as a result of court documents filed last Friday, the Department of Education will temporarily halt collection efforts against students in default, until at least November 6.

Corinthian declared bankruptcy in May after years of trouble with state and federal-level legal authorities. To offer a small sampling of those troubles: in Corinthian's last year of operation, the federal Consumer Financial Protection Bureau sued the company for predatory lending (ultimately resulting in a collective $480 million in debt relief for former students); the Department of Education levied tens of millions of dollars in fines against it after an investigation “confirmed cases” that the company misrepresented the schools' job placement rates to current and prospective students; and the attorneys general of multiple states went so far as to urge the feds to relieve all Corinthian student debt on the grounds that Corinthian misled students about pretty much everything: the quality of its educational programs, transferability of credits, likelihood of job placement afterwards, the availability of internships … pretty much everything a student needs to consider before choosing a school.

Federally financed scam

Under ordinary circumstances, suspending Corinthian-related student debt would be a no-brainer: the company was essentially running a scam, with students as the victims. But the federal government has so far been reluctant to offer a broad-sweeping debt amnesty, because that would leave the feds on the hook for the money: like most for-profit schools, Corinthian was almost entirely dependent on federally backed student aid (especially student loans that cannot be discharged in bankruptcy) for its operating costs and profit margins.

That's probably why, as the Huffington Post noted earlier this month, Education Secretary Arne Duncan is “'thrilled' to close Corinthian Colleges, not so ready to help its former students.”

Indeed, during Corinthian's final year of operation, even as various state and federal agencies suspended aid or levied fines against the company, the Department of Education bent over backwards to try keeping the company afloat. In June 2014, for example, when the DoE temporarily suspended all federal aid for Corinthian students, Corinthian initially protested that the action could put it out of business (possibly the only 100% truthful statement the company ever made about its operations). But Corinthian was able to hang on a few months longer, after reaching a “memorandum of understanding with the U.S. Department of Education that maintains uninterrupted daily operations at its schools.”

The federal government spent years financing a harmful scam, and thus far the victims of that scam are still left holding the bag. Who will pick it up after this November remains to be seen.

Most of the time it is the colleges with the highest student loan default rates – the Corinthian Colleges of the world – that get the attention.

So it is refreshing to learn that there are plenty of public and private schools graduating students out into the world who are able to pay back their student loans. BestColleges.com has released its 2015 ranking, finding Virginia's George Mason University has the best default rate of any public college and California's Claremont McKenna College the best record among private schools.

Among public colleges and universities, Virginia institutions rank 1 and 2 for the lowest student default rates. George Mason University, in Fairfax, Va., just outside the nation's capital, leads the nation with a default rate of only 1.8%. James Madison University, in Harrisonburg, Va., was close behind.

According to the Department of Education, the national average student loan default rate is 13.7%.

Able to get jobs

“It shows that our students get jobs and are able to pay back their loans, and that is the most significant part,” said Carol Brosseau, George Mason University’s senior associate director for student financial aid.

It helps that George Mason's in-state tuition is a bargain for a quality public university – just over $5,000 per semester.

About 58% of Mason students graduate with a loan debt that averages $26,710, Brosseau said. Generally, students have 10 years in which to pay back their loans.

“It's telling you students are graduating and finding jobs,” Brosseau said. “And that is what everyone hopes for.”

In addition to providing millions of dollars in funding every year, BestColleges.com says George Mason is focused on preparing students to be competitive for top jobs upon graduation. Innovative internship programs and continual career networking opportunities ensure students gain experience and build contacts throughout their education, giving them a number of options upon graduation.

Fewer students take out loans

On the private side, Claremont, Calif.'s Claremont McKenna has the lowest default rate, in part, perhaps, because fewer of its students take out loans. According to the ranking, only 16% of the students take out loans to pay for their education. Those who do, however, graduate with about $35,000 in debt.

Approximately half of the study body received scholarship and grant aid in 2014, averaging $35,693 per student.

Claremont, Calif. is also home to Pomona College, a private school that coincidentally places number 2 in the rankings. The university is known for providing excellent scholarship and grant opportunities. Only 15% of all students took out a loan to pay for their education, with the average amount $4,490 per year.

While annual tuition totals $45,500, in the 2013-14 academic year, the average financial aid reward was $41,213.

Meanwhile, here is a list of the colleges whose students have the toughest time paying back their student loans.

Make no mistake, student loan defaults are a serious problem, not just for the students who are drowning in debt but for the financial institutions holding the notes. According to the St. Louis Federal Reserve Bank, the implied delinquency rate for all student loan borrowers is over 27%.

With high school graduation season reaching its peak, millions of 18-year olds who plan to attend college in the fall have just been through the nerve-wracking process of college admissions.

A college degree has always been viewed as a ticket to the middle class, but in recent years that ticket has been harder to come by, even if you could afford it.

Sometime during the 1990s even state-supported colleges and universities got more choosy about the students they admitted.

Open enrollment, whereby any resident of the state who had received a high school diploma was automatically admitted, gave way to selective enrollment, long practiced at elite private schools. If you wanted to get a college degree you had to make it past the college admissions gatekeepers, who didn't just look at grades and SAT scores but delved into a host of personal attributes as well.

In a noteworthy piece in April 2000, The New York Times explored the admission process at one school, Wesleyan University, finding that the subjective criteria of a compelling personal saga could sway a committee of gatekeepers and often make the difference between making it to college or being shut out of the middle class.

Plenty of student loans available

Of course, most people aspiring to the middle class wanted to attend college. As it became more competitive to get in, colleges found they could raise tuition rates without diminishing the pool of students. After all, student aid was available, as were student loans.

While inflation in the general economy slowed to a crawl, the average cost of tuition at a four-year college has increased by 41% in the past 10 years, according to the College Board. It's up nearly 100% since 2000.

As a result millions of students who were smart, skilled and savvy enough to make it past the gatekeepers are contending with tens of thousands of dollars in student loan debt. Even if they have been lucky enough to get a good job after graduation, their monthly student loan payments sometimes make it feel like they haven't quite made it to the middle class.

So it may not be all that surprising that the latest Allstate/National Journal Heartland Monitor Poll finds many younger Americans no longer believe college provides the only route to success. Their definition of success has some things in common with their parents and some things that aren't.

Different paths

“Young people want the ‘American Dream’ of homeownership, career and financial security, though they’re working hard to achieve it on different paths compared to their parents and other generations,” said Troy Hawkes, Field Senior Vice President of Allstate.

For example, it's more important to young people to live in an area with a strong sense of community and volunteerism and more public services. And, they think it might be a better choice to wait for financial stability before getting married and having children.

That's because, according to the poll, 45% of them are still paying student loans. A separate survey by the National Foundation for Credit Counseling found that 53% of the college students it polled said concern about their student loan debt was causing the most stress in their lives. Stress over credit card bills was only 22%.

Opting out of college

While most young people still believe a college degree is important to success, a growing number are deciding to reach for success without it. In May the National Student Clearinghouse Research Center (NSCRC) reported college enrollments are declining because fewer Millennials are attending.

Among the interpretations of the NSCRS report is young adults in their mid 20s are choosing to go to work rather than attend college. The report does not make clear whether these young adults are leaving school to pursue the workplace or not attending college in the first place.

Many young people heading off to college are unable to secure student loans without a family member or friend co-signing for them. But co-signing situations often go awry and student loans are no exception. There are pitfalls for both borrower and co-signer.

For example, in 2010 the Federal Trade Commission (FTC) estimated 3 out of 4 co-signers were left to pay off a loan because the borrower had defaulted.

Having a co-signer on a private student loan can also be risky for the borrower. Let's suppose you needed a co-signer in order to get a private student loan. Maybe a grandparent volunteers. You received the loan and started making payments.

But then your co-signer died. Many private college lenders have a provision in their loan documents that allows them to demand full repayment if the co-signer dies, even if the borrower is making on-time payments. It's called auto-default.

Almost impossible to separate

But here's the rub. Once two parties come together as borrower and co-signer, it is very hard to separate.

The Consumer Financial Protection Bureau (CFPB) Student Loan Ombudsman investigated procedures private lenders put in place to allow co-signers to withdraw, then looked at how many were actually permitted to do so. The CFPB analysis found that the lenders and servicers granted very few releases. Of those borrowers who applied for co-signer release, 90% were rejected.

“Parents and grandparents put their financial futures on the line by co-signing private student loans to help family members achieve the dream of higher education,” said CFPB Director Richard Cordray. “Responsible borrowers and their co-signers should have clear information and standards for releasing the co-signer if the time is right. We’re concerned that the broken co-signer release process is leaving responsible consumers at risk of damaged credit or auto-default distress.”

Lots of confusion

The CFPB report also found that most borrowers and co-signers are in the dark about a lender's criteria for being released as a co-signer. Consumers reported being confused about their eligibility for obtaining a co-signer release as well as not understanding why they had been denied.

Most private student loan contracts continue to contain auto-default clauses, despite promises last year by several lenders they would discontinue the practice. The report shows almost none of them have.

The report also expressed concern that borrowers are at risk when loans are packaged and sold as securities on Wall Street. While a lender may have pledged not to invoke auto default, the report says the investors who buy the loan can change that.

In addition to auto-default clauses, the CFPB analysis found other potentially harmful clauses hidden in fine print of some loans including “universal default” clauses. Lenders have long used these clauses to trigger a default if the borrower or co-signer is not in good standing on another loan with the institution, such as a mortgage or auto loan, that is unrelated to the consumer’s payment behavior on the student loan. These clauses can increase the risk of default for both the borrower and co-signer.

The report calls for a number of policy changes, including improving transparency around co-signer release criteria and examining potentially harmful clauses contained in the fine print.

Yesterday the Department of Education (DoE) made the surprise announcement that it would offer “Debt relief for Corinthian Colleges students,” as part of an attempt “to ensure Americans are protected from unscrupulous colleges that deny students meaningful educational opportunities and leave taxpayers holding the bag.”

Yet critics call the DoE's plan “a process that re-victimizes students as a solution to a problem they [the DoE] created.”

The Corinthian Colleges debacle offers illustrative examples of almost every complaint made against the modern for-profit college industry: namely, exorbitantly high tuition rates not only leave students deeply in debt which cannot be discharged in bankruptcy, but the college degree or credits they earned in exchange for all that debt turn out to be worthless. Traditional four-year colleges and universities rarely if ever accept transfer credits from such schools, state professional certification boards won't accept them, and potential employers won't either.

Corinthian, which owned and operated schools under the brand names Everest, WyoTech and Heald, filed for bankruptcy last month after years of legal troubles.

But the true beginning of the end for Corinthian arguably came last June, when the Department of Education temporarily halted all federal student aid, including bankruptcy-proof federal student loans, to various Corinthian-owned schools. Though federal funding was re-instated a couple of days later, Corinthian had to agree to many strict conditions including a “'teach-out' of schools that are under-performing.” At the time, Corinthian was already under investigation in 20 different states, in addition to its troubles with the feds.

Selling campuses

In early July, Corinthian started selling off some of its campuses after it missed one of the deadlines the feds had established as part of its previous month's agreement with the company.

At the end of that month, Sen. Tom Harkin (D-Iowa) and the Senate Health, Education, Labor and Pensions Committee released a report showing that for-profit schools such as Corinthian were collecting a “disproportionate share of new Post-9/11 GI Bill benefits” paid out to military veterans.

In September, the Consumer Financial Protection Bureau sued Corinthian for what the CFPB called an illegal, predatory lending scheme. CFPB Director Richard Corday said “We believe Corinthian lured consumers into predatory loans by lying about their future job prospects, and then used illegal debt collection tactics to strong-arm students at school. We want to put an end to these predatory practices and get relief for the students who are bearing the weight of more than half a billion dollars in Corinthian’s private student loans.”

The lawsuit charged that Corinthian used “misleading claims” in order to convince students its schools were worth attending. Among other things, Corinthian allegedly paid employers to hire graduates for temporary jobs, which Corinthian then counted as as in-field work toward its job-placement statistics. Corinthian even allegedly created fake employers, then falsely claimed students worked for them. Meanwhile, Corinthian's “career counseling” services included urging students to check job postings on websites such as Craigslist.

In October, the state of Wisconsin made similar claims in a lawsuit it filed against Corinthian-owned Everest College in Milwaukee (which had shut down in August 2013).

Debt relief for students

In February, the DoE and CFPB announced $480 million in debt relief for Corinthian students who'd taken out high-cost, private “Genesis” loans. CFPB Director Corday said it would “provide substantial relief to current and past students who were harmed by Corinthian’s predatory lending scheme.” Affected students were told they could see their individual Genesis debt burdens be reduced by up to 40% – which was another way of saying the students were still on the hook for 60% of those predatory loans.

Then, in April, the attorneys general of nine states (Illinois, California, Connecticut, Kentucky, Massachusetts, New Mexico, New York, Oregon and Washington) published an open letter urging the DoE to immediately relieve the federal student-loan debt burdens of all Corinthian and Everest students. Illinois AG Lisa Madigan said that such students were “victims of the predatory practices of for-profit schools such as Corinthian, which was more concerned with their profits than they were about the quality of education they provided.”

A week later, Corinthian was fined $30 million and forbidden from enrolling any new students at certain of its campuses, for “misrepresenting” job placement rates for its graduates.

According to the DoE, Corinthian's deceptive practices included paying temporary employment agencies to hire graduates for on-campus jobs lasting as little as two days, so the company could then count those students as having found work in their field after graduation.

School's out

Near the end of that month, on Sunday, April 26, Corinthian abruptly announced that it would close all of its remaining campuses effective the next day. Then the company declared bankruptcy the following week.

And now, almost exactly 12 months after the Department of Education first halted federal funding to Corinthian, it announced on its official “HomeRoom” blog that it would offer debt relief to certain Corinthian students.

Some Corinthian schools closed down, while others were sold but remain open. We are establishing plans to ensure debt relief for:

• Students whose schools have closed down

• Students who believe they were victims of fraud, whether their school closed or not

….

If you are a Corinthian student seeking debt relief of either type, please visit the FSA website or call toll-free at (855) 279-6207 and a staff member will provide the information you need.

The DoE also put out an online “fact sheet” about “Protecting students from abusive career colleges.” Among other things, the fact sheet promises that the DoE is “Establishing a streamlined process” for Corinthian students seeking debt relief:

the Department will create a simple application for debt relief, which borrowers can complete online or by email or postal mail. Starting today, former Corinthian students can visit studentaid.gov/Corinthian to learn more, and in the coming weeks, the Department will have an online form available for these borrowers. In addition, students can call a special toll-free borrower defense hotline at (855) 279-6207 to ask about their options.

A long list

But just how streamlined is that process? The Student Aid page says that “In your Borrower Defense to Repayment submission materials, you should include at a minimum” a long, bullet-pointed list of information. The list starts out reasonably enough – you need “A statement that the borrower wishes to assert a borrower defense to repayment based on state law,” and of course you must include some personal identifying details – your full name, date of birth, current contact information and similar things.

Then it says you also must provide this:

• Documentation to confirm the borrower’s school, program of study, and dates of enrollment. Suggested items include transcripts and registration documents indicating your specific program of study and dates of enrollment.

• Any details about the conduct of the school that the borrower believes violated state law including, but not limited to:

  • The state and applicable law or cause of action (if available)

  • Specific acts (including failures to act) of alleged misconduct by the school

  • How the alleged misconduct affected the borrower’s decision to attend the school and take out a loan to pay to attend the school

  • The injury suffered by the borrower as a result of the school’s alleged misconduct

  • Any other supporting information that would help the Department of Education review the borrower’s claim

As Salon pointed out:

Even getting a transcript from Corinthian, especially if the particular campus went out of business, may be challenging. Additionally, the application demands highly specific legal formulations, and borrowers would have to make the right citations of state law and fulfill the proper definitions of injury. This is a job for a lawyer, not a struggling borrower, who may not even be aware of Corinthian’s behind-the-scenes machinations.

Last February, shortly after the CFPB announced $480 million in loan forgiveness for the holders of certain private (not federal) Corinthian-based student loans, a group of former a group of former Corinthian students associated with an offshoot of the Occupy movement known as the Debt Collective announced that they were staging a “debt strike” and refusing to repay their student loans in order to protest the government's legal and financial support of Corinthian.

At the time, the “Corinthian 15” (so called because they started with 15 members) posted an open letter to the Department of Education saying that:

Who are we? We are the first generation made poor by the business of education. …

We trusted that education would lead to a better life. And we trusted you to ensure that the education system in this country would do so. But Corinthian took advantage of our dreams and targeted us to make a profit. You let it happen, and now you cash in. … We are not alone in this fight. Corinthian’s predatory empire pushed hundreds of thousands into a debt trap. But even beyond for-profit schools, tens of millions of students are in more debt than they can ever repay. And you are the debt collector, with powers beyond a payday lender’s wildest dreams. …

And yesterday, in response to the DoE's debt-relief announcement, the Debt Collective responded by saying that the “Department of Education refuses to do its job, again”:

How many times do Corinthian students have to be lied to?

Just as Corinthian Colleges portrayed its programs as a path to a better life when they were in fact debt traps, the Department of Education is portraying a process that re-victimizes students as a solution to a problem they created.

If Education Secretary Arne Duncan was truly “committed to making sure students receive every penny of relief they are entitled to under law” he would sign the “Order for Discharge of Federal Student Loan Debts” the Debt Collective sent him last week, immediately and automatically discharging Corinthian students' debts. Students are entitled to receive full relief under law. The legal and most painless possible process for students is no process—they deserve an automatic discharge of their debts. … In place of this obvious option, the Department of Education's "solution" is a bureaucratically tortured process designed to provide relief only to those who hear about it and can figure out how to navigate unnecessary red tape.

The Debt Collective also argues that without DoE funding – primarily, the federal promotion and backing or bankruptcy-proof student loans intended to cover tuition costs – schools such as Corinthian wouldn't have stayed in business in the first place:

The Department of Education has been misusing taxpayer dollars for decades, funding up to 90% of Corinthian and other exploitative for-profit college chains. Hundreds of thousands of students were led into a debt trap funded by tax dollars. Automatic, class-wide discharges are not only just, they would also serve as a corrective for the Department's flagrant failures to allocate public funds wisely.

Credits wiped out

If you are a former Corinthian student who does have the necessary documentation and legal expertise to apply for the Department of Education's current debt relief program, bear in mind that doing so will completely wipe out any credits or degrees you might have collected from a Corinthian school. Or, as the DoE webpage puts it:

Please note that if you choose closed-school debt relief, you can’t transfer your credits to a comparable program at another institution. However, if you believe you have a claim against your school under state law, such as fraud, you may still pursue debt relief based on borrower defense to repayment, as described below – even if you transfer your credits to another school.

Quite frankly: if you're a former Corinthian student, you should not let fear of losing Corinthian-generated course credit deter you from applying for debt relief, because those credits are probably worthless anyway. The only other schools likely to accept Corinthian-generated transfer credits are other for-profit schools no better than Corinthian. In February 2013, for example, an Everest graduate sued his school, alleging that none of the credits he took at Everest were transferable to a state community college, and many consumers posting on ConsumerAffairs have complained of problems transferring their credits.

“I attended Everest here in Miami in 2010,” a consumer named Lucy said in a ConsumerAffairs posting from last summer. “At the time I had no high school diploma. I completed a test that qualified me for the pharmacy technician program. ... I passed with flying colors.”

But that hasn't done Lucy any good. “To make a long story short, I am $13,000 in debt and still no employment in my field of study,” she said. “We cannot transfer our education credits because it's not considered real.”

The education may not be real, but the crushing debt and financial ruin are.

There is an alternative to running up tens of thousands of dollars in student loan debt in pursuit of a college degree. All you have to do is work for a company that will pay your college tuition for you.

Companies routinely sweeten their benefits package to attract and retain good employees. Providing excellent health coverage is a highly prized perk. So is a college education and more companies are responding by offering partial or full tuition aid as an incentive.

Healthcare benefits provider Anthem is the latest, just announcing a partnership with Southern New Hampshire University (SNHU) to make an associate's or bachelor’s degree available at no charge to any of its eligible full-time or part-time employees.

Competency-based curriculum

Participating Anthem employees will work through SNHU's College for America, which specializes in working with employers to offer competency-based, online curriculum designed to help adults earn a college degree while they are holding down jobs.

What makes this an ideal alternative for debt-averse students is you don't even have to work full-time. As long as you work 20 hours per week you can earn a degree at no cost.

"Anthem is committed to offering its associates a robust benefits package that goes beyond salary and health benefits,” said C. Burke King, president, Anthem Blue Cross and Blue Shield. “Our partnership with College for America has proven successful for our parent company associates who participated in the pilot program in New Hampshire and we want to build on that success by providing opportunities for education, development and career advancement to all our associates.”

SNHU is an old private not-for-profit university with an idyllic campus setting in Manchester, N.H. But more than a decade ago SNHU embarked on an ambitious online education curriculum targeting working adults, offering credit for experience already gained in the workplace.

“This is a tremendous win-win for Anthem and its associates,” said Paul LeBlanc, SNHU's president. “As an employer, Anthem is building talent and the skills needed for promotion in its workforce while associates earn an accredited degree that will help them get ahead in their life and career without taking on debt.”

Other opportunities

SNHU's College for America partners with more than 65 other U.S. employers who help their associates achieve a college degree, either through full or partial tuition reimbursement. And it isn't alone.

Starbucks is partnering with Arizona State University's online program to cover the costs of its employees' – it calls them partners – ASU degree. Under the program the student seeks any financial aid he or she may be eligible to receive and Starbucks takes care of the rest.

Other companies that include at least partial tuition aid to employees include AT&T, Bank of America, Best Buy, Gap, Home Depot, UPS and Verizon Wireless.

Maybe the whole idea of what it means to go to college is changing. Living in a lavish dorm, roaming an ivy-covered campus and enjoying a college social life carries a steep price tag, and increasingly it's a price that can be avoided, along with the debt hangover that usually follows.

Earning money while having your tuition paid by your employer might not just make economic sense, it could advance you toward your career while earning a degree.

It's bad enough that America's current and former college students are struggling under a collective $1.2 trillion in bankruptcy-proof student loan debt, without scam artists bearing bogus offers of debt relief enriching themselves by preying on students' sense of desperation.

Early in May, Illinois' Attorney General Lisa Madigan filed suit against five student-loan “debt settlement companies” which, she says, used false promises suggesting their debt burdens could be reduced or even forgiven entirely in order to defraud student-loan borrowers out of hundreds or even thousands of dollars in fees. Madigan also filed suit against two other such companies last July.

Yesterday, Madigan asked the U.S. Department of Education to “initiate a program to provide certified nonprofit credit counselors for the millions of student loan borrowers seeking help to repay their federal student loans.” She mentioned scammy debt-relief companies to explain why “more qualified sources for help are needed.”

Certification needed

In a letter to Education Secretary Arne Duncan, Madigan urged the DoE to certify nonprofit credit counselors who can help borrowers who need help understanding what repayment options they have, because “Student loan borrowers have nowhere to turn right now to access legitimate information and assistance about their repayment options,” so “It is critical that we provide these borrowers a lifeline before they make costly mistakes by turning to scam artists for help.”

In the meanwhile, borrowers must remain wary of scammy debt-relief services. Last December, when the feds shut down two other scammy student debt-relief companies, it reminded federal student loan borrowers that enrollment in alternative repayment programs, such as the Income-Based Repayment or Pay As You Earn program, is available at no cost.

Also, all debtors – not just those owing student loans – should avoid any company pressuring them to pay high upfront fees. In fact, avoid any debt-relief program requiring you to pay money before they actually do anything for you – especially if they ask you to sign a contract, or ask for your credit or debit-card number, or bank acocunt information.

Also, student loan borrowers should be cautious of any company asking for your Federal Student Aid PIN, because anyone who has your PIN has the ability to perform actions on your student loan. Honest companies will work with you to devise a plan without your PIN.

Nearly 78,000 members of the U.S. military will be getting checks ranging from $10 to more than $100,000. The checks represent excessive interest charges imposed by Navient Corp. when it was servicing student loans as part of Sallie Mae. 

The checks, totaling about $60 million, are scheduled to be mailed on June 12 and will average $771. Check amounts will depend on how long the interest rate exceeded 6% and by how much, and on the types of military documentation the service member provided.

“This compensation will provide much deserved financial relief to the nearly 78,000 men and women who were forced to pay more for their student loans than is required under the Servicemembers Civil Relief Act,” said Acting Associate Attorney General Stuart F. Delery.  “The Department of Justice will continue using every tool at our disposal to protect the men and women who serve in the Armed Forces from unjust actions and illegal burdens.”

The payments are required by a settlement that the Justice Department reached with Navient last year to resolve the federal government’s first-ever lawsuit filed against owners and servicers of student loans for violating the rights of service members eligible for benefits and protections under the Servicemembers Civil Relief Act (SCRA). 

Nationwide pattern

The United States alleged that Navient engaged in a nationwide pattern, dating as far back as 2005, of violating the SCRA by failing to provide members of the military the 6% interest rate cap to which they were entitled for loans that were incurred before the military service began. 

There are actually three defendants -- Navient Solutions Inc. (formerly known as Sallie Mae, Inc.), Navient DE Corporation (formerly known as SLM DE Corporation), and Sallie Mae Bank -- referred to collectively as Navient.

The settlement covers the entire portfolio of student loans serviced by, or on behalf of, Navient.  This includes private student loans, Direct Department of Education Loans, and student loans that originated under the Federal Family Education Loan (FFEL) Program. 

The department’s investigation of Navient was the result of a referral of negative reports from service members by the Consumer Financial Protection Bureau’s Office of Servicemember Affairs, headed by Holly Petraeus. 

The Department of Education is now using a U.S. Department of Defense database to proactively identify borrowers who may be eligible for the lower interest rate under the SCRA, rather than requiring service members to apply for the benefit.

The U.S. Department of Education has reviewed four major student loan servicers to make sure they followed the law by extending the proper interest rates to active duty members of the U.S. armed forces.

For the most part, it found that they did. The report said Navient, Great Lakes, PHEAA and Nelnet complied in the vast majority of cases with the Servicemembers Civil Relief Act (SCRA) as required by the Higher Education Act (HEA).

The reviews closely examined active-duty servicemembers' SCRA eligibility between 2009 and 2014. They reveal that in fewer than 1 percent of cases, borrowers were incorrectly denied the 6% interest rate cap required by the laws.

"For all of the sacrifices they have made on behalf of our country, our brave service members have the right to the benefits provided to them under federal law and should not be subjected to additional red tape to manage their student loans," said Under Secretary Ted Mitchell. "What's more, every student who has taken out a federal student loan should have the peace of mind that the Education Department's servicers are following the law and treating all borrowers fairly."

Streamlined process

The government says the laws for those in the military have streamlined the process for those students when they are called to active duty. Their loan rates are more or less automatically adjusted when they report for duty. Before, they had to apply for the lower interest rate and then prove they were on active duty.

The just-completed reviews were triggered by last year's Justice Department settlement with Navient and its predecessor, Sallie Mae. The settlement addressed

Navient's violations of the SCRA on federal and private student loans.

Th report also presents the results of the review of Navient’s compliance with the SCRA for federally-held FFEL Program and Direct Loan Program loans it serviced under the TIVAS contract.

Results

For the period under review, the government found that in Navient's case, it notified 52 borrowers of their potential eligibility. Navient eventually granted the cap to 16 borrowers, including 6 who were not eligible. It denied the lower rate to 7 borrowers, including 1 who should have received it.

The review found similar results for Great Lakes, PHEAA and Nelnet.

The Department of Education said it is also expanding its review of compliance with the SCRA and HEA to the Department's seven non-profit servicers as well as commercial Family Federal Education Loan (FFEL) servicers. These reviews are expected to be completed later this year.

Interest rates on student loans can vary widely, depending on the type of loan and the type of student that is borrowing. You can check current interest rates here.

It's not enough that millions of Americans are struggling under $1.2 trillion in student loan debt. They often must must try to avoid getting taken by bogus offers of relief.

Any offer of relief can be very tempting for someone who has run out of options. Illinois Attorney General Lisa Madigan says this has drawn the attention of numerous scammers who make big promises in return for big fees, but deliver nothing but disappointment.

Madigan has filed suit against five companies she says charged student loan borrowers hundreds to thousands of dollars in upfront fees with false promises. She says the promises suggested that the debt load could be reduced, or forgiven entirely, under programs endorsed by President Obama’s administration.

The suits were filed against:

• Consumer Financial Resources LLC, of Texas, which operated as Student Loan Resolve
• Federal Student Loan Alliance LLC, based in California
• Interactiv Education LLC, based in Florida, that operated as Direct Student Aid
• Chicago-based Nationwide Student Aid
• Student Consulting Group Inc., based in Georgia, that solicited consumers as University of One and Help Assist Me Default Resolution Services

The approach

The lawsuits paint a picture of a highly deceptive approach. The state says the companies run heavy marketing campaigns, claiming expertise and offering loaded-down borrowers several options to ease their debt burden.

In reality, Madigan alleges, the companies she named in the suit try to persuade desperate people to pay as much as $1,250 upfront for services she describes as “bogus.” These often include enrolling in loan forgiveness programs for public service employees, including teachers, nurses, police officers, firefighters and employees of non-profit organizations.

In many cases, she says, the companies hold out the possibility of complete debt relief without even looking at borrowers’ individual situations, to determine whether they are eligible for the programs. Seldom, she says, is there any explanation of all the required steps borrowers must take to qualify for loan forgiveness.

Proof of the problem

“These scams are proof that the rate of student loan debt in this country has skyrocketed, and it has already destabilized the financial security of millions of people across the country,” Madigan said. “When people cannot make their loan payments, they don’t get to build the future that they dreamed about when they went to college. We cannot allow these scams to continue.”

This isn't the first time the Illinois Attorney General has taken on companies promising student loan debt relief. Last July she sued 2 other companies – First American Tax Defense LLC and Broadsword Student Advantage LLC, charging them with deceptive marketing practices and illegally charging consumers hundreds in upfront fees to reduce or eliminate their student loan debt burden.

The student loan debt settlement industry appears to be a new incarnation of the debt settlement industry that most recently targeted homeowners in distress. In 2011 six defendants agreed to settle Federal Trade Commission (FTC) charges that they participated in a fraudulent mortgage modification and foreclosure relief scheme.

Under that settlement five defendants were ordered to pay back money they collected and all 6 were permanently banned from selling any mortgage assistance or debt relief products.

Meanwhile, consumers looking for options when it comes to repaying student loan debt might want to start with the federal Consumer Financial Protection Bureau.

Illinois Attorney General Lisa Madigan and eight other state AGs today urged the federal government to immediately relieve the federal debt burden of thousands of students who attended Corinthian and Everest Colleges, the for-profit schools that closed most of their campuses last year.

In a letter to the U.S. Department of Education, Madigan said the agency has legal authority to discharge the federal loans of students who have been harmed by for-profit schools like Corinthian.

“We must protect the victims of the predatory practices of for-profit schools such as Corinthian, which was more concerned with their profits than they were about the quality of education they provided,” Madigan said.

The letter, which was also joined by the attorneys general of California, Connecticut, Kentucky, Massachusetts, New Mexico, New York, Oregon and Washington, notes that the Higher Education Act, Department regulations and federal student loan documents all make it clear that students can assert legal claims against schools as a defense to repayment of their loans.

A number of state and federal lawsuits allege that Corinthian misrepresented to students:

• the urgency of enrollment to secure a spot in a program;
• the school’s historical success placing students in jobs in the students’ field of study;
• the earnings of graduates;
• the availability of advertised programs;
• the employment assistance the school provides graduates;
• the school’s role in its private loan program;
• the nature, character and quality of educational programs;
• the school’s purported affiliation with the United States Military;
• the transferability of credits;
• the availability of externships; and
• the nature and availability of financial aid.

“These cases against Corinthian have unmasked a school that relentlessly pursued potential students — including veterans, single parents, and first-time higher education seekers — promising jobs and high earnings, and preying on their hopes in an effort to secure federal funds,” the letter states.

The attorneys general note that the legal enforcement actions against Corinthian will not be enough to provide relief to Corinthian’s victims. The school has indicated it plans to file for bankruptcy, and therefore will likely try to limit relief available to students burdened with thousands of dollars in debt and many without a degree to show for their outstanding loan balance.

Clarify the grounds

In addition to calling for the cancellation of Corinthian loans, the letter urges the department to clarify the grounds needed for students to obtain a discharge of their loans and to specify a process by which students can raise these issues with their loan servicers in order to obtain relief.

The letter also suggests that DOE develop a process by which the findings in a state attorney general’s investigation could be utilized as a defense to repayment for all affected students.

An estimated 40 million Americans have an outstanding student loan, up from 29 million in 2008. Borrowers carry an average balance of $29,000 in student loan debt. Nationwide, student loan debt now stands at $1.2 trillion, representing an increase of more than 150 percent since 2005.

The U.S. Senate Health, Education, Labor and Pensions Committee reported that, during the 2009-2010 school year, for-profit colleges took in $32 billion in taxpayer-backed student aid and spent nearly 25 percent of their revenue on marketing and recruiting, exceeding what was spent on student instruction.

Washington state is suing a company that promises to "adjust" student debt. Attorney General Bob Ferguson filed a lawsuit Monday charging StudentLoanProcessing.US (SLP) and its president James Krause with violating Washington’s Debt Adjusting Act and Consumer Protection Act, including charging illegal fees for debt adjusting and failing to inform customers of important rights as is legally required.

The same services SLP offers are available — for free — through the U.S. Dept. of Education (DOE), Ferguson said.

“My office will aggressively crack down on those who prey on student loan borrowers — many of whom are already overburdened — for profit,” Ferguson said. “This firm charged exorbitant and illegal fees for services that student loan borrowers can obtain for free.”

Many student loan debt adjustment firms have sprung up as a result of the $1.2 trillion debt burden carried by nearly 40 million American borrowers. Most offer to help students fill out and submit paperwork to DOE to consolidate their federal student loans.

Since July 2011, SLP has marketed and advertised for-cost services to assist student loan borrowers applying for DOE federal student loan repayment programs, including the Income-Based Repayment Program, and Direct Consolidation Loans.

$250 upfront

SLP charged each consumer an upfront enrollment fee of $250, or one percent of their outstanding loan balance, whichever was greater. A vast majority of consumers paid more than the $250 enrollment fee, even as high as $2,000. Washington’s Debt Adjustment Act places a strict limit of $25 on initial fees, meaning even SLP’s minimum fee was ten times the legal limit, the Attorney General’s Office alleges.

The Debt Adjustment Act also dictates that a debt adjuster’s fee may not exceed 15 percent of each payment, which SLP’s monthly fee of $39 did for most Washington consumers.

Ferguson also alleges SLP failed to include language in its contracts informing consumers of their three-day “right to cancel” period, a further violation of the Debt Adjustment Act. 

A total of 88 Washington consumers, with an average student loan debt of approximately $58,000, used SLP’s services. SLP has received roughly $132,000 in fees from these consumers.

What to do

For most federal borrowers, the consolidation process is fairly straightforward:  The borrower fills out a two-page application, verifies his or her employment and income, and submits the package to the DOE.  This service is done through the U.S. Department of Education for free and typically takes four to six weeks. 

What we know about student loan debt is sobering enough.

"The average student loan debt for a U.S. graduate of the Class of 2013 was $28,400, according to the Project on Student Debt," said Deborah Figart of the School of Education, at The Richard Stockton College of New Jersey. "Each month, young adults are burdened with 25% to 30% or more of their net pay dedicated to student loan debt."

The total outstanding student loan debt in the U.S. has now surpassed $1.2 trillion. A September 2014 report by the credit bureau Experian found student loans in the U.S. had surged 84% since the Great Recession, with more than 40 million consumers having at least 1 student loan.

It's a debt burden that many recent graduates – and especially those who left school before graduating – cannot easily bear. In its Project on Student Debt, the Institute for College Access & Success reports that more than 650,000 federal student loan borrowers who began repaying their loans in 2011 had defaulted by 2013. The institute reported that students who attended for-profit colleges had a much higher average default rate than other types of schools: 19.1%, compared to 7.2% at nonprofit colleges.

Horror stories

Behind those statistics are specific horror stories. Figart says she has heard from graduates with tens of thousands of dollars in interest-accruing debt but are earning minimal wages. She's heard from law school graduates who can't get a license to practice, despite passing the necessary bar exams, because of a bad credit record.

She says there are restaurant school graduates hoping to become chefs but earning a fraction of what they owe for their degree peeling potatoes.

While the Experian report shows 40 million consumers with at least 1 student loan, Figart says the reality is actually worse. She says the average student has around 8 to 10 loans and the total student debt far outweighs the nation's total credit card bills.

Solution?

The answer, Figart says, is giving prospective college students full and transparent advice before they take out loans for an education that will follow them from campus to the workplace. She says the federal "Know Before You Owe Private Student Loan Act" does not go far enough in several ways and so also fails to protect students from debt.

Figart has taught financial and economic literacy to students and teachers, covering subjects related to budgeting and consumer debt. And, while some states require courses to include a component related to budgeting and finance, she contends too many students are "falling through the cracks."

The solution? Figart says students must be counseled in topics like loan repayment options, average salaries for a wide range of jobs, suggested debt-to-income ratios, and the likely consequences of defaulting on loan repayments.

"In an economy where job security and job quality are increasingly elusive, students pursue higher education as an investment, not simply a means of personal fulfillment," she said. While financial counseling may dash the dreams of some or at least postpone those dreams, it could nevertheless save thousands of students from a fate worse than debt.”

Consumer advocates hate them. Personal financial advisors and debt counselors warn consumers to avoid them like the plague. We're talking about subprime auto loans, especially the ones that stretch payments over seven years.

So if everybody hates them so much, why are they so popular? The obvious answer is that consumers like them. So do car dealers. And loan companies.

Face it -- cars are expensive. It's hard to find anything with four wheels and an engine for less than $35,000 or so. If you're working one or two low-paying jobs, that may be more than you bring home in a year.

A used car is the obvious answer but most consumers have had bad experiences with used cars and prefer to avoid them.

Enter the 84-month car loan. Yep, seven long years of payments. They sound good. After all, you can get a more expensive car than you'd be able to afford otherwise even though the monthly payment may be less than it would be if you bought a cheaper car with a five-year loan.

There's a catch, of course. You'll pay more -- a lot more -- over the life of the loan and you'll likely spend more on maintenance in the latter years as the car turns slowly into a fledgling antique.

Do the math

We went to Bankrate.com's online calculator to look at a couple of scenarios. Let's say your credit score's not great so you get stuck with a 10 percent loan. You have a trade-in that's worth $5,000, leaving $30,000 to finance. 

On a five-year loan, you'll have a stiff monthly payment of $637. But hey! Extend it to seven years and the payment magically goes down to $498. 

Good deal? Not necessarily. Do the math and you'll see that the total cost of the five-year loan is $38,220, the seven-year $41,832 -- an extra $3,612 in interest payments on the seven-year loan. 

In fact, on the seven-year loan, you end up paying more than 25 percent of the purchase price in interest -- $11,832 interest on a $30,000 car. 

What's the worry?

While a lengthy loan may not sound "subprime" -- meaning high-risk -- think about it a minute: Seven years is a long time. Lower-income consumers can lose their job, fall ill, get divorced or suffer some other misfortune that causes them to fall behind on their payments. (The rest of us can too, although we may be better able to recover quickly).Quite simply, other than being skinned alive in interest costs, the fear is that long-term subprime car loans will do to the economy what subprime, variable-rate mortgages did just a few short years ago -- tank it.

And although cars are lasting longer than ever, there's always the possibility that after seven years, the thing will need frequent and expensive repairs.

The risk the lender takes on is that the loan may not be fully repaid. The risk the consumer takes on is that if he falls behind on the loan, his car may be repossessed, in turn causing problems up to and including job loss.

Keep in mind that repossession is a lot simpler and faster than it used to be. Many lenders are equipping their cars with GPS and software that allows them to shut the car down if the borrower tries to take it out of the country or stops making payments. You could be stuck in Mexico with no car.

While you may not have much sympathy for lenders -- or for low-income consumers for that matter -- you should worry about this anyway. A massive number of defaults could spell big trouble for the economy, putting us back into the subprime-caused recession that we're still trying to climb out of.

Ally wades in

So far, only a few lenders have been offering 84-month loans. Ford, Volvo and Nissan's captive finance companies have all stayed away from them, partly because the automakers want to sell you a car more often than every seven years.

Chrysler began offering zero percent 84-month loans in some parts of the country last year, Cars.com reported. Nationwide Insurance and several other insurers are doing the same. Credit unions are also getting in on the act in a big way. 

Subprime giant Santander aggressively pushes long-term loans but, to its credit, offers tips for subprime borrowers that recommend shorter terms.

And now Ally Financial -- formerly owned by General Motors -- says it is offering 84-month loans to "well-qualified" buyers, Automotive News reported.

Some aren't worried

Not everyone thinks this is a huge problem. For one thing, most lenders report writing a very small percentage of seven-year loans, and they say most long-term loans are going to consumers with credit scores above 680, which is considered prime by most lenders.

At a recent conference, Cristian deRitis, a senior director at Moody’s Analytics, noted the small percentage of ultra-lengthy loans and said it was encouraging that credit unions were making many of the loans, Automotive News reported. Credit unions tend to have fewer delinquencies than commercial lenders and are generally regarded as being relatively conservative in their lending practices.

Obviously, everyone's situation is different. Consumers who drive a lot, whether because of long commutes or because they use their car or truck in their work, may save money in the long run by buying a new fuel-efficient vehicle, even if it does mean they pay an extra year or two of interest.

You can't make a similar argument, though, for buying a sports car or luxury vehicle. That's like the under-employed consumer who buys a big expensive house on a variable-rate mortgage. We remember how that turned out.

There is more than $1 trillion in student loan debt in the U.S. By and large, the young consumers carrying this load are doing so at the most vulnerable point in their financial lives.

They are just starting their careers. If they are lucky, they have a job. In most cases, however, their salaries are on the low end. Yet a big chunk of their paycheck goes to making payments on their student loans.

President Obama took this concern to Georgia Tech this week, where he told students that, as valuable as a college education is, paying for it has become a crushing burden.

“The average undergrad who borrows money to pay for college graduates with about $28,000 in student loan debt,” Obama said. “That’s just the average; some students end up with a lot more than that.”

Student aid bill of rights

Obama signed a “student aid bill of rights” designed to make the student loan repayment process easier to understand and manage.

“We're going to require that the businesses that service your loans provide clear information about how much you owe, what your options are for repaying it, and if you're falling behind, help you get back in good standing with reasonable fees on a reasonable timeline,” Obama told the students.

Just as with any other loan, such as a car payment or mortgage, you need to make payments to your loan servicer, the entity that loaned the money. Each servicer has its own payment process, so you should check with your servicer if you aren’t sure how or when to make a payment.

Remember, it's your responsibility to stay in touch with your servicer and make your payments, even if you do not receive a bill.

When payments begin

You don’t have to begin repaying most federal student loans until after you leave college or drop below the minimum requirement of half-time enrollment. The exception is PLUS loans, whose repayment begins once you have received the full amount of your loan.

Your lender is required to provide you with a loan repayment schedule that details when your first payment is due, the number and frequency of payments, and the amount of each payment. Your loan may have a grace period that gives you a little extra time before starting the repayment process.

Grace period

The grace period gives you time to get your feet under you financially and to select your repayment plan. Not all federal student loans have a grace period and keep in mind, even during a grace period interest charges will accrue on most loans.

If you are called to active duty military service for more than 30 days before the end of your grace period, you will get the full 6-month grace period when you return from active duty.

Private student loans – obtained from a bank, credit union or university – have different terms that vary from lender to lender.

For example, Wells Fargo says payments begin 6 months after the borrower leaves school. However, some loans like Student Loan for Parents and the Wells Fargo Private Consolidation loan, payments begin once the loan funds have been received.

Regardless of the source of the loan, Obama said students need clearer instructions on the repayment process.

Today, the U.S. Department of Education and the Consumer Financial Protection Bureau (CFPB) announced $480 million in debt forgiveness, for current and former Corinthian College, Everest College and WyoTech students who took out private, high-cost “Genesis” loans.

As part of this agreement, the ECMC Group, which owns several Corinthian campuses, agreed to forgo operating any private student loan program for seven years, and also agreed to abide by certain consumer protections. Student borrowers affected by the forgiveness plan should see their debt burden decrease by 40%, according to the CFPB.

CFPB's director, Richard Cordray, said the agreement “will provide substantial relief to current and past students who were harmed by Corinthian’s predatory lending scheme …. These consumers were lured into high-cost loans destined to default, and then targeted with aggressive debt collection tactics. We will be vigilant to ensure that consumers receive this important relief and that others are protected in the for-profit college industry.”

Here's how those loans worked, according to the CFPB's Feb. 3 press release:

In September 2014, the CFPB sued Corinthian Colleges, Inc. for luring tens of thousands of students to take out private loans, known as “Genesis loans,” to cover expensive tuition costs by advertising bogus job prospects and career services. The lawsuit also alleges that Corinthian used illegal debt collection tactics to strong-arm students into paying back those loans while still in school. Under the Genesis loan program, nearly all student borrowers were required to make monthly loan payments while attending school. More than 60 percent of Corinthian school students defaulted on these high-cost loans within three years. Even for borrowers who did not default, interest rates were more than twice as expensive compared to interest rates on federal loans. The CFPB’s litigation is ongoing.

Two months later, in November, ECMC bought several Corinthian properties. Under ordinary circumstances, buying a company means you also buy responsibility for any lawsuits or other legal matters against it. However, ECMC made an agreement with the DOE and CFPB to release itself from “potential liability for Corinthian's alleged illegal activity,” as the CFPB put it.

Hence the $480 million debt relief program, which also requires ECMC to agree to: stop offering private student loans for a period of seven years; stop lawsuit threats and improper debt collection practices related to those debts; remove negative information from borrowers' credit reports; and agree to follow various consumer protection rules.

This agreement with ECMC applies only to ECMC; it does not apply to Corinthian Colleges, and does not shield Corinthian from possible legal liability.

What to do

If you are a current or former Corinthian student, how can you determine if this debt forgiveness program applies to you? The Consumer Financial Protection Bureau released a five-page bulletin, available here in .pdf form, answering that question and a few more:

What do I need to do to sign up for this relief? How do I know if I am eligible?

Nothing. Your loan servicer (the company that collects payments from you) will notify you if you benefit from today’s agreement, as well as any remaining balance you may owe.

You should be sure your servicer has your most recent contact information.

This debt forgiveness plan is unlikely to wipe out your debt in its entirety, though page 3 of the bulletin does say this:

How much debt relief will I receive?

The total amount of relief for borrowers with eligible loans is approximately $480 million. These borrowers will immediately see the amount they owe reduced by 40%.

Remember that this forgiveness applies only to private “Genesis” student loans, not to any federal student loans or other private loans which Corinthian, Everest or WyoTech students might owe.

President Obama has proposed taking state and local initiatives providing free community college for 2 years and making them a national program.

The proposal, unveiled in a speech in Knoxville, Tenn., last week, has a $60 billion price tag. And in his speech Obama made clear he views this as much as an economic initiative as an educational one.

“For millions of Americans, community colleges are essential pathways to the middle class because they’re local, they’re flexible," Obama said. “Whether you’re the first in your family to go to college, or coming back to school after many years away, community colleges find a place for you. And you can get a great education.”

Under the “America's College Promise” proposal, students would have 2 years of community college tuition paid, if they maintain a 2.5 grade point average. Participating community colleges would have to meet academic standards.

Reducing student debt

But the proposal is aimed at more than just educating more people. It's also aimed at reducing mounting student loan debt levels. It does nothing for the people already paying on the more than $1 trillion in loans now, but could prevent crippling debt burdens for future students.

“Think about it,” Obama said. “Students who started at community colleges during those two years, and then go on to a four-year institution, they essentially get the first half of their bachelor’s degree for free. People who enroll for skills training will graduate already ready to work, and they won’t have a pile of student debt. Two years of college will become as free and universal as high school is today.”

It sounds good, but does it have a prayer of being approved by the new Republican Congress, that has not exactly seen eye-to-eye with the White House on much of anything?

Bipartisan pitch

Obama is trying to make it a bipartisan issue, one that both parties can support. He made his speech in Tennessee because that state already has such a program, signed into law by a Republican governor. In the first year, Tennessee's program has drawn 58,000 applicants – 90% of the state's high school graduates.

The White House estimates that nationwide, some 9 million students would take advantage of the program. The U.S. government would pick up 75% of the tuition cost while participating states would pay for the rest.

The concept, at least, has some Republican support. Michigan's Republican governor has expressed interest in the idea but Sen. Lamar Alexander (R-TN), who attended the President's Knoxville speech, while liking the idea, thought it should remain a state program.

Changes for education

Either way, if some form of free community college becomes widespread, it could be a major game-changer in education. Perhaps the biggest impact would fall on for-profit colleges, among the most expensive. Could any compelling case be made for spending $40,000 to obtain an associates degree at a for-profit school when the same degree could be gotten for free at a community college?

There could also be some unintended consequences outside the for-profit college sphere. How many underclassmen would non-profit 4-year colleges lose to community colleges? Would they respond by increasing tuition at a faster rate? Would they accept more of the applicants they now turn down?

And what about the community colleges themselves? Can they handle the expected increase in enrollment?

All questions that will be sorted out in the months ahead, no doubt. But the proposal is one that has a good chance of being debated on its merits and not buried in partisan bickering.

The Consumer Financial Protection Bureau (CFPB) has taken action against two student “debt relief” scams that illegally tricked borrowers into paying upfront fees for federal loan benefits.

The CFPB, in a joint filing with Florida’s Attorney General, shut down College Education Services and separately filed a lawsuit against Student Loan Processing.US for illegally marketing student debt relief services.

The Bureau is issuing a consumer advisory warning student loan borrowers to be wary of paying high fees for free federal loan benefits.

“Student loans are already a significant debt for many Americans. College Education Services and Student Loan Processing.US added to that hardship by taking advantage of troubled borrowers and failing to describe their services honestly,” said CFPB Director Richard Cordray. “When scam artists prey on student loan borrowers, we will take action to halt their illegal activity.”

The U.S. Department of Education offers numerous plans to borrowers with federal student loans to make payments more affordable. These include options that let borrowers set their monthly payment based on their income. Monthly payments under these plans can be as low as zero dollars per month for unemployed or very low-wage borrowers.

The Department of Education does not charge any fees to apply for or enroll in these plans, for which many student loan borrowers qualify.

College Education Services

College Education Services, its owner, Marcia Elena Vargas, and advisor and employee, Frank Liz, marketed and advertised debt relief services to student loan borrowers with loans in default. Based in Tampa, Florida, the company advertised through Internet ads and operated websites including CollegeDefaultedStudentLoan.com and HelpStudentLoanDefault.com. The company reaped millions of dollars in advance fees from thousands of consumers before it ceased operations around February 2013.

Student Loan Processing.US

Student Loan Processing.US, a fictitious business name of Irvine Web Works, Inc., is headquartered in Laguna Nigel, California, with an office in Dallas, Texas.

The CFPB alleges that since at least July 2011, the company and its owner, James Krause, has been marketing and advertising services to advise and assist borrowers applying for Department of Education federal student loan repayment programs. The company operates websites under the names StudentLoanProcessing.us, StudentLoanProcessing.org, and slpus.org. 

Consumers warned 

As student loan borrowers run into roadblocks while trying to get help from their loan servicers, such as lost paperwork or payment processing problems, they may grow discouraged with their prospects of an alternative payment plan.

In its consumer advisory, the CFPB warns students to avoid paying for plans that they can easily get for free. The services offered by third-party debt relief providers are not a substitute for high-quality student loan servicing and may cost borrowers thousands of dollars and drive them further into debt.

The CFPB’s consumer advisory points out that enrollment in alternative repayment programs, like the Income-Based Repayment program or the Pay As You Earn program, is available at no cost to federal student loan borrowers. Companies offering special services do not have the ability to negotiate with creditors in order to obtain a “special deal” under the federal student loan programs. The advisory also provides warning signs that a company offering student loan debt relief may be a scam. These signs include:

· Pressure to pay high upfront fees: Consumers should avoid companies that require payment before they actually do anything, especially if they try to get a credit card number, bank account information, or require that consumers sign a contract.

· Requests for a Federal Student Aid PIN: Consumers should be cautious of companies that ask for their Federal Student Aid PIN. This unique ID is the equivalent of a consumer’s signature and giving it away is giving a company the power to perform actions on the consumer’s student loan. Honest companies will work with consumers to come up with a plan without the PIN.

You wouldn't agree to buy a new car without knowing what it was going to cost to drive it off the lot. Yet when it comes to selecting a college, many students enroll without knowing what a degree will ultimately cost.

It's no surprise that millions of students end their 4 years with delayed sticker shock and thousands of dollars in student loans.

Fortunately, colleges in recent years have become more transparent when it comes to letting prospective students know how much their education will cost. But it took a little prodding from the federal government.

Know before you owe

In 2011 the Consumer Financial Protection Bureau (CFPB) introduced its “Know Before You Owe” campaign for student loans.

In a joint venture with the U.S. Department of Education, the CFPB produced a financial aid shopping sheet for use by colleges to help prospective students better understand the financial aid they might qualify for. Students can also use it to compare aid packages offered by different schools. By April 2014, thousands of schools were using it.

The Department of Education has an online tool to help students select a college or university based on cost. Using the tool a student can generate a report on the highest and lowest cost per academic year, focusing either on tuition or net costs.

Tuition reports include tuition and required fees. Net price is cost of attendance minus grant and scholarship aid. Data are reported by institutions and are for full-time beginning students.

Where costs are accelerating

The tool will also select the schools whose costs are rising at the fastest rate. That can be important if a student is a year or two away from enrolling. It lets them know that costs might be higher when they actually enroll and go up significantly over the 4 years they are in school.

Individual colleges are also now required to provide online tools that increase cost transparency. Wellesley College has a cost estimator called My inTuition.

The tool asks just 6 basic questions before generating a personalized estimate of an student's cost to attend Wellesley. The recently-updated version provides a breakdown of the cost paid by the family, work-study, and loan estimates, in addition to grant assistance provided by the college.

"We got a highly positive response when we released the cost estimator last year, and with the provision of more detailed information, we hope to continue and expand on that," said Wellesley economics professor Phillip B. Levine, who invented My inTuition.

Alleviating worry

Levine says the new detailed breakdown provided by the tool may help alleviate some of the concerns around student debt.

"Many families worry that their children will need to take out tens of thousands in loans to cover what they aren't paying out of pocket,” he said. “My inTuition helps them understand that is not the case at Wellesley."

The Department of Education calculator is especially helpful for students trying to narrow their school choices to private non-profit, private for-profit or a state-supported college or university.

For example, when searching for the lowest tuition, it shows the average tuition of the lowest state-supported public colleges is $7,407 per academic year. But among the lowest-cost for-profit schools, the average tuition is more than $15,000.

In the last decade more people have sought a college education and paid more for it. Tuition costs have skyrocketed and so has the amount of money students owe for college loans.

Mark Cuban, billionaire investor and entrepreneur, says rising student loan debt is crushing the U.S. economy, preventing recent graduates from buying the things that normally stimulate the economy. Cuban has offered a rather simple fix.

In an interview with CNBC this week, Cuban called for a cap on the amount of federally-guaranteed student loan money any individual can borrow in a year. With a loan cap, he argues, colleges will have no choice but to reduce tuition.

His comments this week were, in fact, a repeat of those made over the summer at a business conference sponsored by Inc. Magazine.

Educational arms race

Cuban's comments reflect many of the same views we uncovered when we reported on skyrocketing college costs back in 2007. At the time, economist Joel Naroff, of Naroff Economic Advisors, pointed to an educational arms race, with elite private schools pushing the tuition enveloping and public universities scrambling to catch up.

"There is very little pressure of any kind to keep costs down at private schools," Naroff told ConsumerAffairs at the time. "For most of the private schools, especially the better and elite schools, the more expensive it is, the more elite it is, and the more having a degree from that school is a perceived value."

Cuban is now saying that the U.S. government can end this arms race – and perhaps help the U.S. economy – by reducing the money flow to higher education. He suggests limiting the amount of student loan debt to $10,000 per student per year.

Easy money

The current system, he argues, has created an “easy money” mentality among college administrators, who don't always use the money wisely, or in ways that benefit the economy. He uses the example of a college “building a better fitness center” to attract students.

Because there is plenty of money coming in – through higher tuition paid for with student loans – spending just increases, and so does tuition, in a classic inflationary spiral.

“Anytime you create easy money, you're gonna create a bubble or inflation and that's what's happening with college tuition,” Cuban said.

Regulators are concerned

Cuban isn't the only one worried about surging college loan balances, though not everyone may agree with his prescription. The Consumer Financial Protection Bureau (CFPB) first raised the alarm when student loan balances went over the $1 trillion mark in 2013. The total has only risen since then and is currently north of $1.2 trillion.

CFPB has launched a “Know Before You Owe” program to educated students about the dangers of too much student loan debt before they take it on.

College loan debt has become a hot button issue in America. The Consumer Financial Protection Bureau (CFPB) puts the outstanding loan balance well beyond $1 trillion, miring millions of consumers in debt.

The conventional wisdom is that all these people struggling to pay off student loans are young people – recent college graduates. They're not.

A report by the New York Federal Reserve showed that in 2012, the last year for which there are records, 4.7 million people who owe money on student loans are between and ages of 50 and 59. Perhaps more of a surprise, 2.2 million are age 60 and older.

The numbers raise questions

Is it possible that it just takes a long time to pay off these loans? Despite the large number of borrowers, maybe the balances on their loans is very small.

The numbers suggest otherwise. In the 50 to 59 age group, the average 2012 student loan balance was $23,820. For those 60 and up, the balance was $19,521.

By comparison, former students under age 30 owed an average $21,402. Those between 30 and 39 owed $29,364.

The New York Fed report also suggests Baby Boomers are having a hard time paying off those loans. Among former students age 50 to 59, 12% were 90 days delinquent in 2012. Among those 60 and other the delinquency rate was slightly higher, at 12.5%.

Something to worry about

The numbers are worrying to financial planners, who believe Boomers should be reducing debt as they head into retirement. Having to make college loan payments each month vastly reduces the amount of savings they can put away in retirement funds.

The Fed report notes student loan debt is the only form of consumer debt that has grown since the peak of consumer debt in 2008. Balances of student loans have risen beyond both auto loans and credit cards, making student loan debt the largest form of consumer debt outside of mortgages.

The report does not address why consumers would still be paying on loans up to 4 decades after attending college. Some may have found themselves in the position of Charles, of Orlando, Fla., who recently wrote in a ConsumerAffairs post that he is being haunted by an old student loan debt.

“In 1988 I attended a fly-by-night business school (I didn't know it then). My student loan was $2,000. I didn't complete the course, the school went out of business,” Charles writes. “For years I've been trying to get the loan waived only to be told there's nothing to be done. The loan has been sold to various lenders, now Salle Mae has it. I am being charged $50,000.”

One feature of many student loan programs is the ability to postpone repayment. Maybe many people who took out loans in the 1980s thought they would have plenty of time to repay them, but just waited too long to start.

What's more likely is that many of these loan balances are fairly recent, taken out by parents to pay for a child's education. After all, there has always been a strong belief that a college degree is essential to a prosperous life.

Is it worth it?

The Fed recently examined this belief in a report, “Do the Benefits of College Still Outweigh the Costs?” The report concluded that they do, but not for everyone.

Economists Jaison Abel and Richard Deitz looked at the economic costs, benefits, and return on an associate’s degree and a bachelor’s degree. They found that even with increased tuition and falling wages, the return to both degrees has held at about 15% for more than a decade.

But that's primarily because of the comparison to non-degree wages. In the last 10 years workers without a college degree have seen their wages fall.

Students whose chose technical areas of study, such as engineering or math and computers, are getting the best return on invesment – 18% to 21%. Liberal arts majors, on the other hand, are getting below average returns.

Even so, someone contemplating college should carefully consider the cost to benefit equation before taking out tens of thousands of dollars in student loans, which they might be still paying 30 or 40 years in the future.

For a generation the cost of a college education has been rising much faster than the rate of inflation.

As a result, student loan balances are getting bigger and bigger, to the point that the total amount owed on student loans in the U.S. is well over $1 trillion. The search is on for a solution to out of control spending on higher education.

One possible solution might be speed. Instead of spending 4 or 5 years earning a bachelor's degree, running up thousands of dollars in debt each year, what if you could get that degree in a shorter period of time – maybe 18 months?

Sounds too good to be true, and you know what they say about things that sound like that. But a lot of serious people are giving this idea serious consideration.

In a speech on education President Obama said some colleges are already embracing new ways to provide education for less money.

Presidential example

“Southern New Hampshire University gives course credit based on how well the students master the material, not just on how many hours they spend in the classroom,” Obama said. “If you're learning the material faster you can finish faster, which means you pay less.”

Since Obama's speech a number of schools have begun offering accelerated undergraduate and graduate degree programs that can be taken online. And more of a student's previous work may count toward the degree.

In these accelerated program, schools are being more liberal about accepting credit from another school or educational program. That, in itself, can get them closer to their degree in a shorter period of time.

Credit where credit is due

Accelerate Degree, a Charlottesville, Va.-based organization, says if students bring something to the table before applying to a program – whether it be previous credit, work experience, or another way to receive transfer credit – they will likely find that any level degree can be completed in as little as one year.

While it may be difficult to finish a bachelor's degree in one year, there are a number of graduate degrees that may be obtained in that time.

Fast Track Program

Northeastern University, in Boston, calls it the “Fast Track Program.” It offers accelerated learning in select programs, allowing students to transfer credits and complete their undergraduate degree in 18 months.

Bellevue University, a private non-profit college in Nebraska, offers an accelerated bachelor's degree to students who have an associate's degree or close to 60 college credit hours. The school says students can complete their degrees in as little as 16 months.

“If you have fewer than 60 credits, we have many ways to earn credit beyond the classroom, including credit for training on the job or in the military,” the school advises.

Not right for everyone

An accelerated degree program is obviously aimed at adults who have completed some college but are now in the working world. In their present form these programs may be less suitable for incoming freshmen with no credits.

Beyond that, these programs might not work for everyone. It will take someone with a lot of discipline and willingness to put in the intense work to reach their goals.

That isn't exactly a description of today's college student. A 2011 survey found that most students at traditional colleges are taking longer to graduate – only 40% were completing the work within the traditional 4 years.

The Democratically-controlled U.S. Senate has turned aside a proposal by fellow Democrat Sen. Elizabeth Warren's that would have allowed consumers with high-interest student loans to refinance them at today's lower rates.

The reason? The measure needed 60 votes to move forward and the balloting broke cleanly along party lines, with Republicans opposing the measure.

President Obama, who this week signed an executive order capping payments on government student loans, had voiced support for the Massachusetts Democrat's bill. It didn't matter – it failed on a vote of 56-38, 4 short of what it needed.

The key stumbling block, most agree, is the way Warren proposed to pay for the measure. Since there is a cost to the government in lost interest revenue in allowing high-interest student loans to be renegotiated, there has to be an offsetting source of revenue.

Warren proposed implementing the so-called “Buffet Rule,” a minimum tax to be applied to high-income taxpayers. That's a non-starter for Republicans.

Election year issue?

That prompted Jon Healey, editorial writer for the Los Angeles Times, to speculate Warren included that provision as a poison pill, knowing it would cause GOP senators to vote against the measure.

“You have to wonder whether Warren sees student loan debt as a problem to be solved or a campaign issue to be seized,” he writes.

That was certainly the take offered up by the GOP leadership in the wake of the vote. Warren, meanwhile, dismissed those claims and vowed to keep pushing for ways to allow graduates to relieve some of the pressure of their student loan debt.

Not backing off

Warren says the legislation, which she introduced in May, would allow many of the 40 million borrowers with student loan debt to refinance. Similar legislation has been introduced in the GOP-controlled House of Representatives, where no action is expected.

In her speech introducing the proposal, Warren called student loan debt “an emergency” and said it threatens the stability of the U.S. economy. Total student loan debt is now estimated at $1.2 trillion.

Costs

The Congressional Budget Office (CBO) estimates that about half of the outstanding loan volume for federal student loans and loan guarantees – some $460 billion -- would be refinanced under the bill.

Because of the lower interest rates on the refinanced loans, the CBO says the federal government would receive less interest income over the life of the new loans, which would make those loans and loan guarantees more costly for the federal government.

So to pay for the refinancing plan, CBO estimates Congress would increase direct spending for federal loans that are currently outstanding by $55.6 billion in 2015.  

President Obama has signed an executive order that could provide some relief for young consumers struggling under heavy federal student loan debt.

Obama's order, signed today, directs the Secretary of Education to draw up new regulations that would allow an additional nearly 5 million federal direct student loan borrowers the opportunity to cap their student loan payments at 10% of their income.

It won't affect students with private loans.

The Presidential action also outlines a series of new executive actions aimed at supporting federal student loan borrowers, especially vulnerable borrowers who may be at greater risk of defaulting on their loans.

The White House says before contacting their loan servicer to discuss repayment plans, borrowers can use this Repayment Estimator to get an early look at which plans they may be eligible for and see estimates of monthly and overall payments.

Proposed legislation

There is growing concern about the toll rising student loan debt is taking on the economy. Last month Sen. Elizabeth Warren (D-MA) introduced legislation to allow those with all types of outstanding student loan debt to refinance at the lower interest rates currently offered to new borrowers.

Student loan debt is the second highest form of consumer debt, now at a staggering $1.2 trillion, and Warren says it is weighing on the economy - stopping young people and families from buying homes, buying cars and starting businesses.

In addition to trying to alleviate the student loan debt burden, government and public policy organizations are focusing on the reasons behind the huge growth in debt. The Center for Responsible Lending (CRL) says it has found multiple reasons, including a big increase in the number of people going to college and the fact that tuitions are rising.

Role of for-profit colleges

But it also points to the role of for-profit colleges, which depend in large part on students getting access to federal loans and grants. CRL says for-profit schools collected $32 billion in federal loans and Pell grants from 2009 to 2010. It says for-profit colleges absorb around 25% of federal student aid.

“Nearly half of borrowers who default on federal student loans in the first few years of repayment attended for-profit colleges, even though these institutions only enroll 12% of all students,” CRL says on its website. “Many for-profit colleges are also known to engage in deceptive tactics to enroll students.”

Lawsuits

A suit filed in 2011 accuses Education Management Corporation, which operates a number of Art Institutes in the U.S. and is 41% owned by the investment bank Goldman Sachs, of fraudulently collecting $11 billion in federal aid.

The suit, filed by the U.S. Justice Department and several states, is similar to ones filed by whistle blowers formerly employed at various Art Institutes. Among the whistle blower claims – that school officials consistently paid recruiters by how many students they enrolled, in violation of federal law.

No resolution yet

At last report the litigation is pending. Education Management was back in court last year in an attempt to dismiss a suit by Jason Sobek, a former associate director of admissions who claims the company made false claims about its eligibility to receive federal aid. The motion to dismiss the suit was denied.

Education Management isn't the only for-profit education company having to defend itself in court. In February the Consumer Financial Protection Bureau (CFPB) sued ITT Educational Services, Inc., accusing it of predatory student lending.

The CFPB claims that ITT exploited its students and encouraged them to take out high-cost private student loans with a high probability of ending in default. The CFPB is seeking restitution for victims, a civil fine, and an injunction against the company.  

It is often said that co-signing someone's loan is risky business. It makes you equally liable for the repayment of the loan, and if the borrower defaults, the lender then looks to you for repayment.

But there is also a case in which having someone co-sign for you can be a risk to you. This risk is highlighted in a new report from the Consumer Financial Protection Bureau (CFPB) Student Loan Ombudsman.

Let's suppose you need a co-signer in order to get a private student loan. Maybe a grandparent volunteers. You receive the loan and start making payments.

But then your co-signer dies. Many private college lenders have a provision in their loan documents that allows them to demand full repayment if the co-signer dies, even if the borrower is making on-time payments. It's called auto-default.

“Students often rely on parents or grandparents to co-sign their private student loans to achieve the dream of higher education,” said CFPB Director Richard Cordray. “When tragedy triggers an automatic default, responsible borrowers are thrown into financial distress with demands of immediate repayment.”

Bankruptcy will trigger it too

And it doesn't take a death to trigger an auto-default. If the co-signer declares bankruptcy, many private college lenders reserve the right to immediately call the loan, regardless of the payment history.

How often does this happen? The report cites no specific numbers, saying only that since accepting complaints about student loans, this issue has emerged.

“Some consumers assume that death of a co-signer will result in a release of the co-signer’s obligation to repay,” the report states. “Consumers describe their confusion when they receive notices to pay in full since they believed their loan to be in good standing and current.”

The Ombudsman's report says it is based on more than 2,300 private loan complaints and more than 1,300 debt collection complaints. It doesn't mention how many of those complaints come from co-signers themselves, but chances are many of them did.

Co-signers' complaints

A number of private student loan co-signers have posted complaints on the pages of ConsumerAffairs, usually for the touchy issues routinely associated with taking responsibility for someone else's debt. Dave, of Alameda, Calif., recently told us that Citibank does not give the co-signer much information about the loan.

“There may be lawyer double speak in some papers they send with the form, but the student is the only one who receives them,” Dave wrote. “The co-signer is left in the dark, for years, not even aware of the loan. Also, after sending in the application, Citi lets the student know how much they are eligible for and that figure is THEN added onto the app that the co signer has signed.”

Removing a co-signer

One way young borrowers can avoid this auto-default is removing their co-signer from the loan. However, the Ombudsman's report says that can be very difficult to do under the terms of the loan and that being allowed to release a co-signer from the loan is a frustrating process.

The report cites an example in which a student was told his co-signer would be released after he made 28 on-time payments. But after the 28th payment he was told the number was now 36. After the the 36th payment, he was told the magic number was now 48.

“Lenders should have clear and accessible processes in place to enable borrowers to release co-signers from loans,” Cordray said. “A borrower should not have to go through an obstacle course.”

Federal vs. private loans

There is a distinction here and it has to do with the difference between a federal student loan and one from a private lender. According to CFPB, a federal lender only rarely requires the borrower to have a co-signer, but the loan is not called if the co-signer dies or declares bankruptcy.

It is only some private student loan lenders that have this policy but it's not clear how you might know this, unless you ask. A better course of action might be to bypass private lenders altogether, something recommended by the Center for Responsible Lending (CRL).

In fact, CLR has proposed the CFPB require colleges to ensure that students have taken advantage of all the federal loans they are eligible for before allowing them to do business with a private lender.

“Federal loans are almost always preferable to federal loans because of more favorable repayment and forgiveness options,” the group says.

What to do

In the meantime, if you need help in removing a co-signer from a loan – or having yourself removed as a co-signer, here are some links that might prove helpful:

Cosigner Release Advisory

Sample letter on how a borrower can release a co-signer

Sample letter on how to be released as a co-signer

The rising total of student loan debt has been well documented. At last count it is more than $1.2 trillion, according to the Consumer Financial Protection Bureau (CFPB).

Once used mostly to offset the high costs of medical and law school, student loans have now become a routine tool used to finance many undergraduate degrees. Students who don't carefully plan their financing and follow a strict budget can end up with tens of thousands of dollars in loan liabilities, limiting what they can spend on other things as they begin their careers.

Set priorities

One area where students make a mistake, early in their college careers, is in the way they use the money they have borrowed. Eric Adamowsky, co-founder of CreditCardInsider.com, says students should only spend borrowed money on things directly related to education.

“A lot of students end up taking out additional loans for room and board, so they can live in a nicer place or to have spending money,” he said. “But the basics -- tuition, room and board and books -- that's where student loans should be used.

It's also a good idea to set a “ceiling” for student loans. Most experts recommend borrowing no more than you expect to make in your first year on the job after graduation.

Cost effective option

Another mistake sometimes occurs before students even arrive on campus. They simply select a school they can't really afford. Sometimes students eager for “the college experience” pass up their most cost-effective option.

“I know the community college route isn't terribly sexy but coming from someone who has spent the last 22 years in the corporate world I can tell you the no employer cares where you took English 101,” Adamowsky said. “Taking it at Dekalb Community College is going to be considerably cheaper than taking it at Duke.”

As long as the school where you want to end up accepts the credits, a community college or in-state university can be an ideal place to take your required courses, at a much lower cost per credit hour. Averaged over four years, it lowers the cost of a college education.

Also, you're more likely to get into the college of your choice if you wait and transfer in for the last year or two. Some states even guarantee that in-state students who complete two years of community college can attend the state university of their choice for the last two years.

January is an important month

Because schools have different deadlines for financial aid and processing takes time, completing your Free Application for Federal Student Aid (FAFSA) is a crucial first step when you need to borrow for college. Adamowsky says it should be done in January, the earlier the better.

“Many schools have different deadlines but more importantly, there are actually a number of states that serve FAFSA applicants on a first-come, first-served basis, so the faster you can complete and submit the application, the better,” he said.

Adamowsky says federal-backed student loans are the best you’ll find in terms of interest rate, grace period, and flexible repayment plans. Because who qualifies and how doesn't can be a complicated matter, he says everyone should apply, rather than just assuming their family makes too much money.

Serious business

Finally, students err by underestimating the longterm effects of student loan debt. Borrowing over a four-year period, it is easy to lose sight of your total debt, leaving you with a debt the size of a small mortgage at graduation.

“Guidance counselors and parents can be more proactive in helping students understand what it means to run up a large student loan debt and how that debt will measure up against what potential jobs pay,” Adamowsky said.

Before beginning the student loan process students should determine the total amount they will need to obtain a degree. Your repayment plan for student loans should be as strategic and aggressive as for any debt you carry—especially if you have income left at the end of the month to put towards it.

The genesis of the 2008 financial crisis is pretty clear. Mortgage companies eagerly made loans to homeowners without thoroughly checking whether they could really afford the payments.

When over-extended consumers began to default in large numbers it sent a devastating shock wave through the international financial industry, which had purchased trillions of dollars worth of these mortgages in the form of securities. The housing market has begun to finally recover but the economy is still feeling the effects of this meltdown.

Some economists are worried the same thing could happen with student loans, with equally-devastating results. Consider the numbers: in 2012 the Consumer Financial Protection Bureau (CFPB) reported total student loan debt in the U.S. had passed the $1 trillion mark – it's now surpassed $1.2 trillion. The CFPB expressed the concern this level of debt might not be manageable in a tight job market where debt-burdened graduates have difficulty finding employment.

Number 2 after mortgages

After mortgages, student loan debt, from both federal and private loans, now represents the biggest aggregate debt balance. A 2013 report by the Congressional Joint Economic Committee showed the steady increase in student loan debt over the last decade has been driven by an increase in both the number of student borrowers and the average debt of those borrowers.

Two-thirds of recent graduates have student loan debt, the report found. Those borrowers had an average balance of $27,200, which is 60% of the annualized average weekly earnings of young college graduates. In other words, they have little money to pay for rent, much less a mortgage.

While cash-strapped youth are a drag on the economy an equal concern is whether they can pay back the money they owe. On that score there's plenty to worry about. Federal data shows that more than 600,000 federal student loan borrowers who began a repayment program in 2010 had defaulted on their loans by 2012. Nearly half – 46% – of those students attended for-profit institutions. The latest default figures, released last September, show a rise in the default rate for the sixth straight year.

Sitting this one out

While investment banks and hedge funds rushed in to purchase mortgage back securities during the heyday of the housing bubble, they aren't the ones holding student debt. At least not as much as they were. JP Morgan Chase announced in October it was get getting out of the student loan business altogether.

Instead, it's largely the U.S. taxpayer that's on the hook. Over the last year or so the U.S. government has been buying up student loans, with the objective of encouraging lenders to stay in the student loan market. If the loans eventually go bad, it probably won't trigger a financial meltdown like the foreclosure tsunami did.

“There's just not the leverage and derivatives tied to the student loan market that was tied to the housing market, that got us into the mess we're in today,” said John Canally, investment strategist at LPL Financial, in an inview with Yahoo Finance. “From that perspective, a half-trillion dollars in student loan debt isn't the worst thing in the world.”

Rather, many economists fret on the economic drag caused by millions of young consumers – those lucky enough to find full time jobs – unable to buy a home or new car, spending their earnings to stimulate the economy.

Student loans have become the nation's second largest consumer debt market and, in a weak job market, there has been a rapid rise in borrower delinquency in recent years. 

The Consumer Financial Protection Bureau (CFPB) is bringing new oversight to nonbank student loan serviers, issuing new rules intended to protect borrowers from unscrupulous lenders.

“Student loan borrowers should be able to rest assured that when they make a payment toward their loans, the company that takes their money is playing by the rules,” said CFPB Director Richard Cordray. “This rule brings new oversight to those large student loan servicers that touch tens of millions of borrowers.”

More than 40 million Americans with student debt depend on student loan servicers to serve as their primary point of contact about their loans. Student loan servicers’ duties typically include managing borrowers’ accounts, processing monthly payments, and communicating directly with borrowers.

Earlier this year, the CFPB announced that outstanding student debt totals approximately $1.2 trillion. The Bureau also estimates that 7 million student loan borrowers are now in default on their debt. 

When facing unemployment or other financial hardship, borrowers contact student loan servicers in order to enroll in alternative repayment plans, obtain deferments or forbearances, or request a modification of loan terms.

A servicer is often different than the lender itself, and a borrower typically has no control or choice over which company services a loan. When problems arise because of servicing concerns, student loan borrowers may end up in trouble. They may miss a payment, owe more money because of additional interest on principal, or face future difficulties with credit because of a poor payment history.

Supervision expanded

The Bureau currently oversees student loan servicing at the largest banks. Today’s rule expands that supervision to any nonbank student loan servicer that handles more than one million borrower accounts, regardless of whether they service federal or private loans.

Under the rule, those servicers will be considered “larger participants,” and the Bureau may oversee their activity to ensure they are complying with federal consumer financial laws. 

Under today’s final rule, which was proposed in March, the Bureau estimates that it will have authority to supervise the seven largest student loan servicers. Combined, those seven service the loans of more than 49 million borrower accounts, representing most of the activity in the student loan servicing market.

Many student loan servicers perform their functions well. But the recent annual report by the Bureau’s Student Loan Ombudsman identified a broad range of concerns voiced by student loan borrowers in complaints to the CFPB. Borrowers submitted complaints to the Bureau highlighting:

• Prepayment Stumbling Blocks: Since options to refinance high-rate private student loans are limited, many consumers attempt to pay off their loans in order to reduce the amount of interest owed over the life of the loan. But many consumers express confusion about how to pay off their loans early. For example, borrowers complained that servicers applied their payments in excess of the amount due across all their loans, not to the highest-interest rate loan that they would prefer to pay off first.
• Partial Payment Snags: When borrowers have multiple loans with one servicer and are unable to pay their bill in full, many servicers instruct borrowers to make whatever payment they can afford. Many complaints described how servicers often divide up the partial payment and apply it evenly across all of the loans in their account. This maximizes the late fees charged to the consumer, and it can exacerbate the negative credit impact of a single late payment.
• Servicing Transfer Surprises: When borrowers’ loans are transferred between servicers, borrowers say they experience lost paperwork, processing errors that result in late fees, and interruptions of routine communication, such as billing statements. Consumers complained that payment-processing policies can vary depending on the servicer. And, consumers said when they make decisions on the previous servicer’s practices, they can get penalized.

The toll of student loan debt in the U.S. now exceeds $1.2 trillion, according to the Consumer Financial Protection Bureau (CFPB), and is a growing cause for concern among economists and policymakers.

The concern is potential default, creating a wave of repercussions that could set off a new credit crisis, potentially worse than the one created by the foreclosure tsunami. Many former students still paying off their student loan balances work in public service jobs that typically have low salaries. Congress has approved measures to forgive some debt for these consumers but the programs have not been well publicized.

The CFPB is trying to raise awareness, creating a toolkit to offer practical advice to public sector employers and employees, advising that an early start can make the difference of thousands of dollars. 

By CFPB estimates, as many as 25% of U.S. workers may be eligible for some form of student debt forgiveness. Eligible employees work for government agencies or non-profits and include teachers, librarians, first responders and some healthcare professionals.

Mired in debt

“Our young people should not be mired in debt because they stir themselves to the call of public service. They deserve to know all their options,” said CFPB Director Richard Cordray. “Our toolkit and pledge can be a win-win for employers, the public they serve, and their employees who are facing student debt loads that are imposing unprecedented burdens upon this generation.”

To qualify for the forgiveness program, your loans much be federal, and a certain kind of federal, and cannot be private. Second, you must make 120 qualifying payments on those loans while employed full time by certain public service employers. That's 10 years of payments while working in the public sector.

According to the U.S. Department of Education, only loans you received under the William D. Ford Federal Direct Loan (Direct Loan) Program are eligible for this program. Loans you received under the Federal Family Education Loan (FFEL) Program, the Federal Perkins Loan (Perkins Loan) Program, or any other student loan program are not eligible.

Consolidation possible

However, your FFEL or Perkins loans may be consolidated into a Direct Consolidation Loan to gain eligibility. But only payments you make on the new Direct Consolidation Loan will count toward the required 120 qualifying payments for loan forgiveness. Payments made on your FFEL Program or Perkins Loan Program loans before you consolidated them, even if they were made under a qualifying repayment plan, do not count.

Even with these limitations, the CFPB believes millions could benefit if they only were aware of the program. It's reaching out to public sector employers first, urging them to inform their employees about their options.

The toolkit provides a guide for employers to assist their employees with verifying their eligibility and steps they need to take to qualify. Meanwhile, some in Congress are promoting additional legislation to ease the debt burden on college graduates.

Something more?

Rep. Karen Bass (D-CA) is calling for a new federal student loan repayment system that would alleviate the financial burden on college graduates as they begin their careers.

“By creating an equitable system to ease student loan debt we can lessen the financial impact on the next generation while jumpstarting the economy, creating jobs and promoting financial responsibility for higher education,” Bass said in a post on her website. 

She's backing the Student Loan Fairness Act. a combination of two bills that died in the 112th Congress – The Student Loan Forgiveness Act (H.R. 4170) and The Graduate Success Act (H.R. 5895). The new bill would establish a new 10-10 standard for student loan repayment. In the “10-10” plan, an individual would be required to make ten years of payments at 10% of their discretionary income, after which, their remaining federal student loan debt would be forgiven.

American Student Assistance, a non-profit, is also heavily involved in promoting ways for graduates to shed some of their student loan debt. The group recently published “60 Ways to Get Rid of Your Students Loans Without Paying Them,” a title that may stir more interest than the CFPB's toolkit.

With the end of July fast approaching, there's only a little time left before college freshmen start heading off to campus.

So right now a lot of students are walking the aisles of department stores and gathering all they'll need to face their first semester away from home. And many times, Mom and Dad will be footing the bill.

Whether they spend money on knickknacks for their child's dorm room, on footlockers to pack a lot of stuff or a bunch of new clothes, parents will definitely shell out some major bucks for the college experience. And that's before the student sets foot on campus.

How much?

But what will the costs be after that?

According to EasyFianance.com, the average yearly cost for a public four-year college in the United States is $25,892, if the student is from out of state. A private four-year school runs about $31,915 a year.

If you choose to go in-state, a public four-year school will cost $17,227 on average and a public two-year in state school will run $9,541 -- but only if you choose to live off-campus.

Just the start

But tuition is just one of the expenses that parents and students will face.

Yearly health costs for one student will run $2,200. Books will cost $1,137. A computer will run about $1,000. Clothing and other items from the book store will cost $826 and having a social life will set each student back about $520 a year.

Got a car? Add about $500 each year. And attending sporting events will cost about $230, so there will be costs coming for parents and students from all directions.

Show me the money

Research shows there are currently 19.7 million students in the United States attending college -- 11.2 million women and 8.5 million men. And most of them will have to find ways to come up with the money they'll need.

Student borrowing is the most popular way of paying tuition; the average amount a student will borrow is $5,692 a year. Separately, parents will borrow about $3,396 a year and through savings and their personal income, parents will contribute an additional $2,261 yearly.

A good number of students will use their own income to help pay for school; the average amount they'll pay is $8,752 a year. Some will get help from their relatives ($2,314 a year). Others will use grants and scholarships ($1,682 a year) to get the money they need.

So from various sources, a lot of students will be able to gather the funds to pay for school, but for most folks, that's where the financial fun just begins.

Student debt

During the course of four years, many students will think about the debt they'll eventually have to pay off, but they'll probably put those thoughts on mental back burners. 

But somewhere between the graduation ceremony ending and the real world beginning, paying off that debt will be moved to the front burner. Researchers say the average amount of debt a student graduates with is about $25,250 -- an increas of 50% over the past 10 years.

Moreover, 45% of students fail to graduate but are still left with huge loans to pay back.

Out of all students who attended a 4-year school in 2010, two-thirds were left with a student debt, and since 1999 student debt has gone up by 511%.

Paying off debt

Just how are graduates paying off their debt? A lot of them are moving back home to make payments easier.

Statistics show that 85% of college grads move back in with their parents, becoming boomerang kids; in 2010 the unemployment rate for new college graduates was 9.1%.

However, many people will say the high cost of college is worth it, as statistics show that college graduates will earn about 85% more than high school graduates. But some  will have it better than others.

Currently, the college majors with the highest unemployment rate are, clinical psychology, fine arts, U.S. history, library science, military technologies, educational psychology, architecture, industrial and organizational psychology, linguistics and comparative literature.

As far as master's degrees are concerned, geology, nursing, public health, business administration, biology, medicine, physical therapy, economics and civil engineering are some of the highest-paying majors.

Lowering costs

Lt. Gov. Joe Garcia of Colorado says it'll take the efforts of Washington and local communities to get schools to lower tuition.

"One thing we need to do is avoid placing blame and figure out how to find a solution, because it's in our shared interest to do so" said Garcia in a published interview. "We do have to control costs and provide more state resources to the schools so they don't have to raise tuition, and we have to pressure schools to be innovative, to look for ways to provide education at a lower cost to students while not compromising their quality."

In addition, Garcia says we'll all have to view higher education differently from here on in, and solve the problem of high tuition costs together, not individually.

"We have to convince voters that it's an investment that's worth making, and I don't think most voters are buying that just yet," he said. "They view Higher Ed as an individual responsibility; they don't see the collective community benefit that we all get when and individual receives and education."

There's a lot of hand-wringing over rising levels of student debt but Congress, so far, has been unable to figure out a way to keep new loans from becoming more expensive.

A law subsidizing the Stafford Loan rate at 3.4% expires at the end of June. Starting July 1, 2013 the rate jumps to 6.8% on new loans – much higher than the interest rate on a home or car purchase. There's a measure in Congress to extend the subsidized rate for two years. Democrats generally support it but Republicans generally oppose it as too costly. Its backers concede the stalemate.

“The federal government provides subsidized student loans to increase the number of Americans who can attain a college degree -- not to generate revenue,” said Sen. Jack Reed (D-RI), a co-sponsor of legislation to extend the lower rate. “We do this because a college education is a means of empowerment. It helps individuals build a better life and helps our nation build a stronger economy -- generating more jobs and opportunity and strengthening the middle class.”

Stafford Loans

Stafford Loans are federal student loans to college students pursuing an undergraduate or graduate degree. They are intended to supplement personal and family resources, as well as aid from scholarships, grants and work-study. With the expiration of the law, the Stafford Loan will go from one of the cheaper college loans to one of the more expensive ones.

The Consumer Financial Protection Bureau (CFPB) has recently focused attention on the issue of student loans, warning they are burdening a generation with oppresive debt. The agency provides an online tool to help prospective students compare loans and find the best deal.

According to CFPB, most students will find federal loans to be the best option. When it comes time to pay back federal loans, the interest rate will be fixed, which will help you predict your payments after graduation. In some cases, the federal government will pay the interest on your loans while you are in school, with subsidized loans.

Private student loans

Other student loans are generally offered by private companies or entities. The most common private student loans are offered by banks. Their interest rates are often variable, which means it's hard to know what your interest rates and payments will be.

Private loans can also be more expensive. According to a report by CFPB, private loan rates have been as high as 16% over the past couple of years. When it is time to repay, private loans often don’t offer as many options to reduce or postpone payments.

Natasha, of Austin, Tex., completed work on her undergraduate degree in four years with the help of a $25,000 student loan from Wells Fargo. She says she was shocked by the interest charges.

“Today I call for my payoff amount and it is $29,300,” she wrote in a ConsumerAffairs post. “I'm paying 17.2% more money than I borrowed. If I paid it off over the next 20 years I would only have paid interest and still owe the entire loan when I'm 42 years old.”

Adds up fast

Chrystal, of Florence, S.C., says she got an associates degree from Strayer University that turned out to be much more costly than she thought.

“The only thing I’m not happy about is the amount of student loans I have racked up,” Chrystal writes. “In the five years since graduating I hadn’t put much of a dent in my student loans and the monthly payment is not small. Now, due to the economy I am being laid off from my job and as of June 4th will be unemployed. This is in no way Strayer University’s fault but just be careful when taking out student loans because they add up fast!”

They do, indeed, add up fast. The total student debt total in the U.S. is now well in excess of $1 trillion.  

Former Education Secretary William Bennett has never shied away from controversy and has now waded into the debate over the cost of higher education with a new book with the provocative title, "Is College Worth It?" 

In it, Bennett argues that only 150 out of 3,500 U.S. colleges and universities provide an education that is worth the investment it requires. He points out that nearly half of those who start a four-year education drop out.

Among 2011 graduates, he says half are unemployed or significantly underemployed. If you aren't attending a handful of colleges, including California's Harvey Mudd College, MIT, the California Institute of Technology, Stanford, Harvard or Princeton, it's not worth the money, he argues.

Another view

Blogger Zac Bissonette, writing at Yahoo Finance, argues that Bennett is wrong – that most of the time getting a college education will pay off. He agrees that college may not be right for students who didn't perform well in high school. However, he says college is worth it if you opt for a lower-cost in-state public college, minimize debt, study hard and make connections. 

At ConsumerAffairs we have heard from a number of students who don't think college was worth the cost. By and large, these students have attended one of the growing number of for-profit colleges.

“I had attended the University of Phoenix and graduated only to learn that I had over $7,000 in student loans - half what the school advisor had explained to me,” Bob, of Portland, Ore., posted at ConsumerAffairs.

Gail, of Mason City, Iowa, writes that she incurred more student debt to attend Kaplan University than she can pay back.

“The student loans were consolidated and I was on the income-based plan,” she reports. “Now I need to contact legal aid to get help, because they put me on a standard plan. I was never given any help in finding a job, so I'm working for two temp services.”

Can't make the payments

Sarah, of New Oxford, Pa., writes that her husband is unable to make his student loan payments to Sallie Mae.

“They will allow him to defer the loan for $150 for three months, but the $150 does not go towards paying off his loan,” Sarah wrote in a ConsumerAffairs post. “We have told them we could squeeze $300, but they will not lower to that amount, and will not accept partial payments."

Lori, of Colver, Pa., attended DeVry University, another for-profit school catering to mostly adult students, and writes that she spent a lot of money without getting a degree.

“This past July I was informed that I no longer had enough in loans to finish my degree,” she write. “My entire degree as a part-time online student was to cost $58,000 and as of July DeVry had billed me over $73,000. That is with 28 credits still remaining and 8 transferred credits.”

Public colleges cost much less

The cost of a for-profit school is similar to that of an established private, non-profit institution and almost everyone who attends one pays for it with student loans. State-supported schools – particularly community colleges -- cost much less and can often be paid for by working a part-time job.

Even so, getting a degree won't guarantee a job, at least not right away. A new study by the consulting firm McKinsey & Co., along with the online student hub Chegg, finds that many young people coming out of college are overqualified for today's job market, yet are completely unprepared for its challenges.

More than half the graduates in the survey said they would do things differently if they had it to do over again.

College graduates don't have long to celebrate before their student loans come due, and a report released today warns that it's not just the graduates whose economic progress is being held back. The broader economy could be affected as well, the Consumer Financial Protection Bureau (CFPB) found.

“College can open up many opportunities, and we do not want that college degree to become more of a burden than a blessing for those saddled with unmanageable debt in a tough employment market,” said CFPB Director Richard Cordray. “Today’s report warns of the potential domino effects on the economy of high student debt. It also identifies policy and market-based solutions based on the public’s comments that would help borrowers manage their private student loan burden.” 

The report summarizes more than 28,000 comments received over the last few months. Many of those who commented were concerned about the potential domino effect of student loan debt on the economy.

Several comments described how monthly student loan payments can deplete consumers’ personal savings, may crowd out other types of consumer spending, and may shape the choices young graduates make about their careers and the communities in which they live. 

Sectors affected

Other comments centered around specific economic sectors, including: 

• Housing: The current generation of first-time homebuyers is inhibited by a heavy student debt burden that may hurt their ability to qualify for a mortgage or to save for a down payment.

• Small Business Development: Student debt may limit consumers’ ability to access small business credit and to save capital. 

• Retirement Savings: Those with student debt may be unable to save for retirement or may have to rely on their parents, who are nearing retirement, to help pay their debt. 

• Rural Communities: Rural areas in particular struggle to attract and retain young professionals. Car ownership may be a prerequisite for employment and rental housing may be scarce. For cash-strapped student borrowers, the need to buy a car or a house may deter them from moving to a rural area.

Proposed solutions

The report also outlines a number of proposed solutions, including:

• “Refi relief” for borrowers who pay on time:  Comments from market participants, policy experts, and individual borrowers suggest that refinance options on private student loans could offer relief for responsible borrowers. If borrowers were eligible to refinance their debt at lower interest rates, they could potentially save thousands of dollars in the process.

• A “road to recovery” for borrowers in distress: Other comments suggest that a “road to recovery” could be a solution for struggling borrowers trapped in the terms of their private student loans. This could be a  negotiable, transparent, step-by-step process where monthly payments are lowered to match a reasonable debt-to-income ratio. 

• A “credit clean slate” for borrowers in default:  A number of comments propose that a “credit clean slate” option would be appropriate for borrowers who need a way to repair their credit and get out of default. 

When parents and their children start shopping for colleges, a lot of factors come into play in making the final choice. One of those factors is – or should be – the cost of a four-year education.

On the typical college's website you'll find a current estimate for tuition and fees for a semester or year, plus estimated costs of room and board and books. But that's just the sticker price. The actual cost may be higher or lower.

The choice of a school doesn't always come down to cost but increasingly it does. So being able to find the real cost of college can help you make the right decision.

Online tool

One tool that can help is the U.S. Department of Education's College Scorecard, a calculator that lets you determine the cost of attending some 600 institutions of higher learning in the U.S.

It works by adding up the tuition and fees the school charges, then subtracting the average aid a student receives. However, it also assumes the average student will have to take out loans, so the payments on those loans are also figured into the mix.

The actual cost can be very different from the sticker price. The University of Wisconsin (UW) at Madison is a prime example.

UW's website lists in-state tuition at $10,609. When you add in books, room and board and miscellaneous other costs, it adds up to $24,204 – as expensive as some private universities. But, it turns out, the actual cost is much lower, at least according to the Scorecard.

Takes financial aid into account

When you enter UW into the calculator, you find the net cost is just under $15,000. The net price is what undergraduate students pay after grants and scholarships – financial aid you don’t have to pay back -- are subtracted from the institution’s cost of attendance.

The tool also reveals that UW students borrow, on average, $19,897 to pay for a four-year education. The federal loan payment over 10 years for this amount is approximately $228.98 per month. That has to be figured into the real cost of an education.

The scorecard provides other information that might be useful when picking a college. Again, in UW's case, it shows an 82% graduation rate and a 1.4% student loan default rate, well below the national average.

If students do not apply for or receive grants or aid, and are forced to take out larger loans, the real, or net, cost of attending college and receiving an undergraduate degree can be much higher than the Scorecard price.

Growing awareness of costs

"Now more than ever, it's crucial that parents and students are aware of the total cost of a degree," said Chuck Cohn, CEO of Varsity Tutors, a private academic tutoring and test prep company. " As the cost of tuition continues to rise, students need to be vigilant about planning ahead and finding the best options for funding their education, not only to attend college in the first place, but also to graduate with an amount of debt they can manage."

College debt is a growing concern. In the U.S., there is now a larger balance of student loan debt than credit card debt. In 2012 students ended their education owing an average $27,000. Some had degrees, some didn't. Not surprisingly, 67% of students who graduated in 2009 are still paying on their student loans.

The College Scorecard hasn't been in operation all that long and some early critics have said it lacks specifics to help parents and students gauge the real costs of college, which more often than not involve student loans. While it might not provide the complete picture, it does underscore the need for students of limited means to obtain scholarships and grants to pay the rising costs of education, or otherwise be saddled with significant debt.  

By the time a child reaches the sophomore year of high school, going to college jumps from a future goal to something kids really have to start preparing for, whether it’s taking the PSATs, sporadically visiting schools to get a feel of where they'll want to go or deciding what they'd like to study once their freshman year at college begins.

And for many families, finances will be a real issue and may determine which school a kid can attend, whether they’ll have to work and how much money they will need to borrow.

Once senior year of high school hits, all kinds of decisions need to be made and by the time the January rolls around, kids should be getting out the last of their college and financial aid applications and parents--especially those who may be cash-strapped--need to get the last of their financial ducks in a row, which will oftentimes include a big fat loan.

Understanding college loans can get a little confusing, in terms of knowing which loan is right for you, what the monthly payments will look like, and what the penalty fees will be if you’re late or miss a payment. We’ve pulled a couple of places you can visit, because many families will need all the help they can get to both pay for college and fully understand how those payments are applied.

First, The U.S. Department of Education has added two new features to its StudentLoans.gov site.

One feature is a Repayment Estimator and the other a Complete Counseling page, which are both pretty self-explanatory and both can assist families, whether it's a family sending their child to college for the first time or one that's paying back a loan after their child graduates. 

Less intimidated

The Department of Education says the new additions to the StudentLoans.gov site are supposed to help families feel less intimated about the process of borrowing and repaying a college loan.

“With college graduation around the corner, thousands of students will soon start to repay their loans and we want to help them select the repayment plan that makes sense for them,” said U.S. Secretary of Education Arne Duncan.

“These tools give students the information they need to understand how to better manage their student loan obligations. Our goal is to make the entire challenge of college costs much less daunting, and these tools are additional steps in that direction.”

To access the sites' new features, current users will need to log in with their PIN numbers and new users can apply for a PIN here.

An abacus

Collegebacus.com is another site that helps families understand college costs and financial aid packages.

The site is free and perhaps best of all, the creators say they’ll never sell your financial information to other parties for future solicitations or charge for use of the site.

“There are many hidden costs in the college process; our goal is to help users identify and hopefully avoid these costs. We do not wish to add to them. We will never sell the financial information of our users. Our site earns revenue by connecting prospective students with colleges, not through the sale of financial information to third parties,” the company says on its website.

Here’s how the site works:

It gathers net-price calculators from about 2,500 colleges and universities across the U.S., as legislation recently forced schools that receive federal funding to add net-price calculators on its websites, so families can better determine how much each school costs and how big of a dent their financial aid packages will put in the tuition.

These calculators are usually able to break down each cost, especially those hidden fees that often aren’t mentioned in the school’s advertised tuition prices, so instead of families having to go to each individual college site, Collegebacus.com provides one-stop-shopping, or one-stop-calculating if you will.

The creators of the site say the calculations it provides will be the same as the ones provided by the net-price calculators on the college websites.

Out of whack

That's all fine but the concept of going into extreme debt to get an education seems totally out of whack, and some politicians agree.

Minnesota Gov. Mark Dayton and Sen. Al Franken recently attended a panel discussion on the campus of St. Paul College, in Minnesota and said that poor families digging themselves into an even bigger financial hole to pay for their child’s education is vastly different from how they were able to secure a college education.

“When I was an aide to then-Sen. Walter Mondale in 1975-1976, education was one of my areas of responsibility, said Dayton.

“And back then federal student financial aid was one-third grants, one-third loans and one-third college work study. Now it’s 2% college work-study, 18% grants for the poorest student and 80% loans; which means for most students and their families it’s loans, loans and more loans.

Fine talk. Now what?

As student loan delinquencies rise, there are growing fears that borrowers will be treated unfairly by lenders and their servicers. Seeking to get a handle on the situation, the Consumer Financial Protection Bureau (CFPB) wants to extend federal oversight to some so-called "nonbank" student loans.

“The student loan market has grown rapidly in the last decade, and servicers are now facing the stress of an increasing number of delinquent borrowers,” said CFPB Director Richard Cordray. “Our rule would bring new oversight to the student loan market and help ensure that tens of millions of borrowers are not treated unfairly by their servicers.”

The Bureau already oversees student loan servicing at larger banks. Thew proposed new rule would expand that supervision to certain nonbanks, requiring them to comply with federal consumer financial laws.

The Bureau would ensure that banks and nonbanks are following the same rules in the student loan servicing market. The vast majority of student loan servicing is conducted by nonbank servicers.

Under the rule, any nonbank student loan servicer that handles more than 1 million borrower accounts would be subject to CFPB supervisory authority. With that threshold, the Bureau estimates that it would have authority to supervise the seven largest student loan servicers.

Combined, those seven service the loans of 49 million borrower accounts, representing most of the activity in the student loan servicing market.

The CFPB said it will continue to coordinate closely with the U.S. Department of Education, which conducts reviews of companies handling loans in accordance with the federal student aid program.

"Director Cordray and the CFPB team have always been great partners with us, and we have worked together on a number of projects to protect consumers and better support students," said U.S. Education Secretary Arne Duncan. "We look forward to working with them on their efforts to ensure that loan servicers are protecting student loan borrowers."

There are many things that go into a student’s decision when they're choosing a college -- some related to academics, some to cost and some to location.

Sometimes people choose a school because other family members went there, so a student’s desires take second place to a sense of obligation and family pride.

There are also times when a high school student doesn’t have the proper amount of adult guidance and the college decision is simply left up to them, which can lead to students being placed in a school that doesn’t fit their passion or help them develop one. It's also hard for a student to generate excitement for a school if they don’t know enough about it.

Fortunately, there are some websites available that can at least help students get started on their college quest and although you’ll have to couple these sites with some good old-fashioned legwork by visiting schools and speaking to administrators, they can at least give you a basic amount of information that you can fill out later on.

College Scorecard

One of the newer college sites comes from the U.S. Department of Education and was mentioned in President Obama’s last State of the Union address. It’s called “The College Scorecard,” which the President says will not only help parents and students decide which schools are best for them, but also help decide which schools will be best for their budget.

“My administration will release a new College Scorecard that parents and students can use to compare schools based on a simple criteria: where can you get the most bang for your educational buck,” Obama said.

Parents and students can use the site in any number of ways by conducting searches by degree, major, size and location of the campus or campus setting.  You can plug a college name into the search field and pull up information that way too.

Once your search is completed, the screen brings up a digital scorecard that has each school's tuition cost, loan default rate, graduation rate, employment rate and the average amount that’s borrowed per student.

U.S. Secretary of Education Arne Duncan says the virtual scorecard is supposed to provide a quick college overview for students and will help them make a more informed decision compared to just a few years ago.

“We know students and families are often overwhelmed in the college search process, but feel they lack the tools to sort through the information and decide which school is right for them,” said Duncan. “The College Scorecard provides a snapshot about an institution’s cost and value to help families make smart decisions about where to enroll.”

NextStepU

Another useful site, which also serves as a good first step when researching colleges, is NextStepU.com. It lets you search for schools, find available scholarships and get guided tips on how to pay for school.

The site also has different contests that users can join like writing competitions and contests where you can win tuition money, but it would probably be smart to stay away from these offers since you’ll most likely be inundated with annoying follow-up emails and non-stop promotional offers.

Although NextStepU doesn’t seem to provide the same depth of well-researched data as The College Scorecard, the site is still easy to navigate and has some helpful information about many different aspects of the college-hunting experience.

What’s a little annoying about NextStepU is that users will have to register to use some of its features, always an annoying step and one that raises privacy concerns.

But in an email, Diana Fisher, the site's publisher, said the only part of the site that requires registration (aside from the Win Free Tuition contest) is the Scholarship Search Tool.

"The rest of the site you are free to navigate at will. We abide by privacy laws and are quite strict in what we do with the registrations on the site, especially because they are teens and most are under 18," Fisher said.

But without signing up you can still do a quick college search based on your major and location and be able to see the cost of the school, the average amount of student aid awarded and some informational write-ups on each institution. Registered users can click on a link and contact a school of their choice to request information be sent to them.

Deciding on a school is no easy task and doing your homework can be a more cumbersome experience, but instead of picking up phones and using snail mail to get college info like many of us had to do back in the day, the process has been streamlined, thanks to technology and some creative educators who know just how difficult finding the perfect school can be.

These sites and others like them are also useful because parents can make sure their kids are choosing the right schools for the right reason and not making their selections solely based on where the campus is located and what the social scene will be like.

With student loans now topping credit cards as the largest source of consumer debt in the U.S., the Consumer Financial Protection Bureau (CFPB) is gathering information to develop options for policymakers to make repayment of private student loans more manageable for struggling borrowers.

The CFPB says while private student loan borrowers wish to pay their loans, they face high payments, lack alternative repayment and refinance options.

“Too many private student loan borrowers are struggling with unwieldy debt that prevents them from climbing the economic ladder,” said CFPB Director Richard Cordray. “We will be analyzing plans for policymakers to consider that might help avoid a repeat of the mortgage meltdown for today's student loan borrowers.”

Difficulty repaying

In October 2012, the CFPB Student Loan Ombudsman released a report noting that consumers had trouble negotiating affordable repayment plans with their lenders and servicers for private student loans -- loans that are not designed with income-based payment options. This report to the Secretary of the Treasury, the Secretary of Education, the CFPB Director, and Congress recommended that policymakers explore options to spur the availability of alternative repayment and refinance options.

In July 2012, Director Cordray and Secretary of Education Arne Duncan submitted a report to Congress on the private student loan market. The study indicates there are more than $8 billion in defaulted private student loan balances, representing 850,000 distinct loans, with even more in delinquency.

Unlike distressed borrowers with federal student loans, private student loan borrowers generally do not have long-term forbearance, income-based repayment, or rehabilitation options if they default. The study concluded that many borrowers are struggling to pay off private student loans, especially in tough economic times.

The CFPB has released a Notice and Request for Information in the Federal Register. With the information gathered from that notice, the CFPB plans to explore more detailed recommendations to policymakers in order to facilitate greater repayment affordability of private student loans.

Flexible repayment options sought

The Bureau is looking for ways that private student loan borrowers can have more flexible repayment options and is seeking input on a variety of issues related to repayment affordability, including:

• How student loan burdens might affect the broader economy and hinder access to mortgage credit and automobile loans;
• How distressed borrowers manage their student loan obligations;
• What options currently exist for borrowers to lower their monthly payments on private student loans;
• Examples of successful alternate payment programs in other markets and which features could apply to this market; and
• The most effective mechanisms for communicating with distressed borrowers.

Members of the public, including financial institutions, colleges and universities, professional associations representing health professionals and educators, housing finance experts, students, and families are encouraged to submit comments.

Comments will be accepted until April 8, 2013.

People love bargains, except, apparently, when it comes to education. In pursuit of a college degree, students and their families run up huge debts, to the point that total student loan indebtedness is now over $1 trillion.

But is it really necessary to spend tens of thousands of dollars in pursuit of a college degree? Community colleges offer an overlooked alternative.

Community colleges started out almost as vocational schools. Students attended for two years getting a degree that prepared them for a particular vocational field, such as nursing.

Path to four-year degree

But community colleges also offer study in academic fields and increasingly, their credits transfer to most four-year colleges and universities. In many states, community colleges have become aligned with the state's university system, so that community college credits easily transfer to state-supported four-year schools.

The tuition at a typical community college is usually less than half of what it costs to attend a four-year public university. It is much less than a typical private or for-profit university. In fact, many students make the costly mistake of enrolling at an expensive for-profit school to obtain a two-year associates degree.

Sherley, of Hackettstown, NJ, said she pursued an associates degree from Katherine Gibbs, a for-profit school, hoping she could work as an administrative assistant. She said she ran up $50,000 in loans for a two-year degree that would have cost 10 percent of that -- or less -- at a community college.

“After eight years I am still unable to find a job in that field,” she wrote in a ConsumerAffairs post. ”Now I am stuck with a load of bills from two different lenders.”

Better education

Not only do community colleges cost less, the quality of education continues to improve, so that students who do their first two years of work there go on to have successful academic careers when they transfer to a four year college.

Tomas Hult, Director of Michigan State University's International Business Center, says community colleges do an exceptional job in providing courses in international business. His study found that in 2008, about 51 percent of community colleges offered a basic course in international business. Four years later that number had jumped to 85 percent.

“The most important takeaway is that we as a nation appear to be putting funds into community college education to infuse a global mindset in a much larger way than in the past few years,” Hult said. “International business education is really starting to flourish at two-year schools.”

Playing a pivotal role

Forty-four percent of college students -- about 13 million students -- attend about 1,200 community colleges in the United States, so the schools play a pivotal role in educating the 21st-century global workforce, he said.

And how can they do it so much more cheaply than four-year schools? It probably comes down to spending less money.

In recent years the typical four-year school has spent millions of dollars constructing luxury dormitories and other creature comforts to attract students -- not to mention football stadiums and basketball arenas. For-profit schools, of course, have to show a profit for stockholders.

Community colleges generally don't have those cost burdens. In many ways they operate the way colleges did decades ago -- a time when a college education wasn't so expensive.

After facing such things as IEDs and car bombs while serving overseas, the last thing a U.S. servicemember needs upon returning home is a hassle with a student loan.

But according to a newly-released report from the Consumer Financial Protection Bureau (CFPB), that's exactly what a lot of them are facing. The report, “The Next Front? Student Loan Servicing and the Cost to Our Men and Women in Uniform,” describes servicemember complaints regarding the difficulties they have accessing the protections granted to them under federal rules.

The hurdles they describe range from not being able to get the information they need, to being met with roadblocks when they do try to pursue their benefits.

“We are concerned that our men and women in uniform are not being given the opportunities they have earned under federal law,” said CFPB Director Richard Cordray. “For all the service our military members give us, the least we can do is protect them from this kind of disservice.”

Paying off loans

Many servicemembers have student loan debt, including both federal and private student loans. The average cumulative amount of student loan debt for active-duty servicemembers graduating from college in 2008 was about $26,000, according to the National Center for Education Statistics.

Student loan default can be particularly troubling for active-duty servicemembers because it can affect their security clearance and military career. Burdensome debt can also be distracting and difficult to deal with, especially if serving overseas.

Congress put in place laws and programs to grant additional protections to servicemembers with student loan debt. The Servicemembers Civil Relief Act (SCRA) gives an interest rate reduction to men and women in uniform who acquired student loan debt before they went on active duty.

The Income-Based Repayment program reduces monthly payments based on income and family size. And, among other choices, there are special loan deferral programs, principal reduction options on certain loans for service in hostile areas, and loan forgiveness on certain federal loans for public service.

Myriad problems

The report, based largely on complaints filed with the CFPB, as well as input from military borrowers at dozens of town halls and forums across the country, looks at how servicemembers are handling both their federal and private student loans.

It considers servicemembers who entered the military with debt and those who acquired it while serving. The report found that from trying to get good information to trying to take advantage of the benefits, servicemembers said they run into trouble. Specifically, servicemembers say that they:

• Receive incomplete or inaccurate information: A common theme the CFPB heard from servicemembers was that they relied on their loan servicers to properly inform them of their repayment options -- but that servicers were not providing clear and accurate information. According to servicemembers, this was particularly true for military deferment and forbearance. By relying on this information and choosing less favorable repayment plans, servicemembers may be setting themselves up for tens of thousands of dollars in excess debt over the life of the loan.
• Have difficulty navigating the system of benefits: The patchwork of options for military student loan borrowers can be confusing. Some laws and rules apply only to federal loans. Some benefits have specific eligibility requirements or conditions attached. Some require loan consolidation which might exclude borrowers from other protections. And other options vary greatly depending on the private student loan lender. Servicemembers who have multiple loans from multiple lenders say that it can be particularly difficult figuring out which loans are eligible for benefits.
• Face roadblocks when they try to get their benefits: Even if they navigate the maze of options, servicemembers report that they are often met with loan servicer roadblocks. For example, the CFPB has heard from military borrowers, including those in combat zones, who have been denied interest-rate protections because they failed to resubmit unnecessary paperwork. These kinds of servicing obstacles prevent servicemembers from taking advantage of the full range of protections they have earned through their service to this country.

The problems that servicemembers report are typically on top of the problems civilian borrowers report in loan servicing as outlined in the CFPB Student Loan Ombudsman’s Annual Report issued this week. That report -- which focuses specifically on private student loans -- described complaints received from private student loan borrowers, including surprises, customer service runarounds, and dead-end loan terms.

Education program

The CFPB is teaming up with the Department of Defense to create better awareness of the rights and options for servicemember student loan borrowers. The partnership will be multi-pronged, including Judge Advocate Generals, Education Service Officers and working with personal financial counselors on military bases.

CFPB staff, for example, will be visiting the Judge Advocate General’s Legal Center and School in Charlottesville, VA, to train legal assistance attorneys from all branches of the military about issues raised in the report, and to ensure they know about repayment options for servicemembers.

In an effort to educate military consumers and the advisers seeking to assist them, the CFPB has developed a guide for servicemembers with student loans with information on the various student loan repayment options, as well as frequently asked questions commonly posed by military student loan borrowers at Ask CFPB.

Servicemembers can also use the CFPB’s online Web tool, the Student Debt Repayment Assistant, to navigate their options.

More information about how the CFPB is helping servicemembers is available here.

If there's anything worse than graduating college and not being able to find a decent job, it has to be not being able to find work AND facing a mountain of student loan debt.

According to a report released by the Consumer Financial Protection Bureau (CFPB) Student Loan Ombudsman, private student loan borrowers say they are sometimes surprised by the terms and conditions of their loans, they are given the runaround by their loan servicer, and they have few options to refinance or modify repayment for a better deal.

“Graduates don’t have a fair chance to pay back their debts if they are faced with surprises, runarounds, and dead-ends by student loan servicers,” said CFPB Director Richard Cordray, who was presented with the report today. “These young consumers are facing serious challenges in dealing with their debt, which can hold them back from getting ahead in life.”

Familiar scenario

“Student loan borrower stories of detours and dead-ends with their servicers bear an uncanny resemblance to problematic practices uncovered in the mortgage servicing business,” said CFPB Student Loan Ombudsman Rohit Chopra, who wrote the report. “Consumers deserve clarity, not chaos and confusion.”

“I graduated from college in 2003, had a student loan for $8,000 and have been paying it off continuously since then,” writes Rebecca of Lyman, NH, in a ConsumerAffairs post. “I still owe $5,000 on my loan and have paid more than originally borrowed so far, doubling up on my payment most months. Even so, I will end up paying more than double the amount I borrowed by the time I am done. This is a very bad loan for anyone. Citibank also calls my house up to three times a day at all times of the day and night (often when you pick up the phone there is no one there!) and harasses me from the day the payment is due until it is paid each month. I tell them I have paid it online, the time and date, but they say their system won't update for days and I will be contacted regardless. If there is not a lawsuit on unethical business practices with this company, there should be.”

Kimberly of Cairo, GA, has a student loan with rates of 10.75% with Wells Fargo. “They call me morning, noon, and night asking for money,” she tells ConsumerAffairs. “I could not pay a bill of $650.00, so I took a hardship deference. Now the deference has come to end, they expect me to make a payment of $800.00! I have tried to make smaller payments, but they will not accept these. I also have other student loans which I do stay current because they are more affordable. I am afraid they are going to go after my husband, which is my cosigner. I am not a traditional student either. I am 43 years old, and I have a family. I graduated in May 2011, and dealing with this is a nightmare!”

Huge burden

Student loans have now surpassed credit cards as the largest source of consumer debt in the United States. Earlier this year, the CFPB announced that outstanding student loan debt crossed the $1 trillion mark.

Before the financial meltdown, the private student loan market boomed and many consumers borrowed significantly to pay for post-secondary education. But unlike federal student loans, private student loans generally have higher and variable interest rates and may not allow borrowers to easily manage their payments in times of hardship.

The Dodd-Frank Wall Street Reform and Consumer Protection Act established an ombudsman for student loans within the CFPB to assist borrowers with private student loan complaints. Today’s report, which was mandated by Congress, analyzed approximately 2,900 private student loan complaints, comments, and other submissions and input from borrowers. The report found that roughly 95 percent of the complaints are about loan servicing -- when borrowers try to pay back their debt or are unable to pay.

Top findings

The three major findings of the report are:

• Surprises cause borrower confusion: Private student loan borrowers told the CFPB that after they graduate, some have a hard time figuring out how much they owe. Borrowers complain that they may not receive the information they need about their loans when repayments begin, and are caught off guard by unexpected terms and costs. Some surprises include unknown or misunderstood terms and conditions, accounts changing hands, unauthorized payments, and unexpected forbearance fees. With limited information to anticipate and avoid these surprises, some borrowers end up in trouble.
• Borrowers report getting the runaround from servicers: A common theme found in the complaints is the difficulty some borrowers face when trying to contact their servicer. Borrowers report having difficulty taking advantage of the incentives promised to them before they signed up for the loan. Then, whether it is looking for clear and accurate information about bills, trying to find payment options, or simply trying to get payments processed properly, some borrowers complain about getting the runaround. This may include payments credited late or unevenly, faulty record-keeping, and inadequate assistance from servicing staff. The report finds that the service problems in private student loan servicing reported by borrowers mirrors the experiences borrowers have reported in mortgage servicing.
• Borrowers face refinancing dead-ends: The report found that another theme of the complaints was that responsible borrowers find themselves locked into loan terms they cannot negotiate out of – no matter what their circumstances. Despite efforts to make good on their loans, some borrowers stated that they ended up in distress with limited or no options for deferrals, forbearance, or interest-rate changes. According to the complaints, even some co-signers who were promised that they would be released from responsibility after a period of on-time payments, may find themselves trapped in the loan. The results can be disastrous for some borrowers, especially ones new to the job market and struggling to find work.

U.S. college students and former students now owe more than $1 trillion in student loans, according to the Consumer Financial Protection Bureau (CFPB). A new report shows just how wide-spread that debt is.

The report, conducted by the Pew Research Center, is based on its analysis showing nearly one out of five U.S. households owes money for student loans. That's more than double the share from 20 years ago and a fairly significant increase to the 15 percent of households with student loan debt in 2007.

More people going to college

Since the onset of the Great Recession and the jump in unemployment, more people are choosing to go to college because they can't find a job, or hope to improve their job prospects by earning a degree. Because college costs so much, almost no one goes to college anymore without borrowing money.

It's not just parents who are going into debt to pay for their children's education. The Pew report found that a record 40 percent of all households headed by someone younger than age 35 owe student loan debt -- by far the highest share among any age group.

That's a bit disturbing because it shows the debt burden is being assumed by people early in their careers when the debt service on their loans commands a large percentage of their incomes.

Burden falls heaviest on low-income households

The report also finds that, whether computed as a share of household income or assets, the relative burden of student loan debt is greatest for households in the bottom fifth of the income spectrum, even though members of such households are less likely than those in other groups to attend college in the first place.

Since 2007 the incidence of student debt has increased in nearly every demographic and economic category, as has the size of that debt, the report finds.

The households owing student loan debt owe, on average $26,683. That's up from $23,349 in 2007.

In 2007 10 percent of households holding student debt owed more than $54,238. In 2010, those 10 percent of households owed more than $61.894.

Need help repaying your student loans? The CFPB offers help and advice to students and former students who are trying to get a handle on their payments.

There's new evidence that recent college graduates are struggling under the mounting burden of student loan debt, which earlier this year passed the $1 trillion mark.

Equifax, one of the three credit reporting agencies, has found that student loan delinquencies and write-offs have increased significantly over the past 12 months.

According to the report, student loan write-off rates increased more than 29 percent month-to-month from June-July 2012. Student loan 60-day delinquency rates increased more than 14 percent year-to-year in the same period.

Loan balances growing

Student loan balances are also going up, rising $58.5 billion year-over-year from July 2011-2012. The total number of student loans has increased nearly 24 percent from July 2011, when there were 89 million, to July 2012 when there were 116 million.

In the first seven months of 2012 lenders have written off $9.3 billion in student loan debt, a 10 percent increase over the year before. Severe derogatory balances, which usually comes just before a write-off, are up 14 percent over a year ago.

"Student loans is one area of lending not affected by tighter underwriting standards since the start of the recession," said Equifax Chief Economist Amy Crews Cutts. "The investment in higher education pays off over a person's lifetime, while the tuition cost has to be paid up-front, leading to big demand for student loans. Unfortunately, the current job market has not been kind to new graduates and their student loans start to come due once they graduate – if they don't have a job by the time the first installment is due, they can find themselves in quite a jam."

Other consumer credit areas improving

While student loan delinquency rates are surging, consumers appear to have a pretty good handle on their credit in other area. The Equifax reports shows that, in the July 2011 to 2012 period, auto loan 60-day plus delinquency rates declined 35 percent. Bank credit card 60-day plus delinquency rates were down 21 percent. Consumer finance 60-day plus delinquency rates declined 23 percent.

At the same time, consumers increased their use of new credit. It increased 13 percent from May 2011 to May 2012. The biggest increase in new credit was seen with bank credit cards, which was up 21 percent. It rose from $58.1 billion through May 2011 to $72.9 billion through May 2012.

The Consumer Financial Protection Bureau (CFPB) earlier this year raised the alarm over student debt, noting that the toll of outstanding student loans is now over $1 trillion.

Who owes this money and how are they ever going to pay it back? A researcher at the University of Wisconsin has found that the student debt burden falls heaviest on students from middle-income families.

Upper income students don't need loans. Low-income students have a number of aid opportunities. But researcher Jason Houle says for many middle-income students, loans are the only form of student aid available to them.

Middle-income squeeze

Houle calls it the “middle-income squeeze.” The families of these young adults make too much money for their children to qualify for adequate financial aid benefits, but not enough to afford the rising costs of tuition, room and board, and additional university fees.

In his study, Houle found nearly 41 percent of all students left school with some student loan debt, and the average debt among those students was more than $22,000.

“Young adults from middle-income families are at the highest risk for student loan debt,” Houle said. “As tuition costs continue to rise and outpace inflation, students increasingly use loans as the primary means of financial aid.”

Among those who left school with student loan debt, Houle found that on average young adults from middle-income backgrounds, whose families earned between $40,000 and $59,000 annually, owed over $6,000 more in student loan debt than their low income peers whose families made less than $40,000 per year.

Similarly, students from somewhat more affluent middle-income backgrounds, whose families made between $60,000 and $99,000 annually, racked up nearly $4,000 more in student loan debt than young adults whose families earned less than $40,000 per year.

Pell grants go mostly to lower-income students

Over 90 percent of all Pell Grant recipients come from families with annual incomes of less than $40,000.

“Young adults whose families make just over $40,000 are less likely to qualify for such student aid packages, and tend to suffer a disproportional burden of student loan debt,” Houle said.

Houle looked at other factors besides income. He sound that students whose parents had less than a college degree were also at a higher risk of accumulating student loan debt. African American students were also significantly more likely than their white peers to rack up student loan debt. In addition, he found that young adults with single parents or step families were more likely than students whose biological parents were together, to incur student loan debt.

As college graduates struggle to find high-wage jobs in today’s economy, inflated student loan debt forces young adults to begin their careers at an increased risk of default and penalties for missed payments. Bankruptcy is not an option for students struggling to pay off their student loans, which, Houle said, makes student loan debt a very unique and dangerous liability.

The Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Education today released a report that describes the risky practices and debt that stemmed from the boom and bust of the private student loan market in the past ten years. 

According to the CFPB’s estimates, outstanding student loan debt in the United States topped $1 trillion in 2011 -- $864 billion of federal student debt and approximately $150 billion of private student loan debt. 

“Our findings reveal that students were yet another group of consumers that were hurt by the boom and bust of the financial crisis,” said CFPB Director Richard Cordray.  “Too many student loan borrowers are struggling to pay off private student loans that they did not understand and cannot afford.  Moving forward, we must do our best to leave the next generation in a better place than we are today, rather than buried under a mountain of debt.” 

“Subprime-style lending went to college and now students are paying the price,” said U.S. Education Secretary Arne Duncan. “We still have some work to do to ensure that students who take out private student loans have the same kinds of protections offered by federal loans. In the meantime, if you have to take out a loan to pay for college, federal student aid should be your first option.”

Significant changes

Private student loans were originally designed to supplement federal student loans, and still serve that role in most cases,but there were significant changes in lending in the years leading up to the financial crisis. 

Funded in large part by the asset-backed securities market, many lenders made money by originating and then selling private student loans with less regard for borrowers’ creditworthiness. The market grew from less than $5 billion in 2001 to over $20 billion in 2008, and then rapidly contracted to less than $6 billion in 2011. After the financial crisis, underwriting standards tightened as investors pulled out of the market.

In the Dodd-Frank Wall Street and Consumer Protection Act, Congress mandated that the CFPB and the U.S. Department of Education conduct a detailed study to determine where there might be consumer protection gaps in the private student loan market.  For this report, the CFPBreceived loan data from nine lenders on over five million loans made between 2005 and 2011, as well as data from five nonprofit lenders.

Three major findings of the joint report are:

• Private student loans are riskier: Used appropriately, private student loans have a role to play in financing higher education.  However, compared to federal student loans, private student loans often lack repayment flexibility and other protections when borrowers are struggling to make ends meet.  Most private loans have few options for payment modification or forbearance.  Federal loans have a fixed interest rate and most private loans have variable rates, making estimates about future debt payments difficult.  Prior to 2010, federal law did not require a disclosure showing the actual interest rate on a borrower’s loan until after the lender documented the loan, approved the credit, and readied the check for mailing.

• Lax underwriting practices rise during boom:  Some lenders bypassed school financial aid offices and marketed loans directly to students.  As a result, in many cases, the school could not review the borrower’s financial need, compare it to the loan amount, or even verify that the borrower was enrolled.  Many lenders also lowered the minimum credit score required to receive a private student loan so that they could originate and then sell off more loans.  Many students did not understand the differences and features between federal and private loans.  They ended up using riskier private loans before exhausting their safer federal options.  

• Borrowers are trapped after bust: Defaults on private student loans have increased since the financial crisis.  Based on the CFPB’s sample, there are now over $8.1 billion in defaulted private loans, representing more than 850,000 distinct loans.  Congress amended the bankruptcy code in 2005 to make it tougher to discharge private student loans.  There is little to no evidence that there was an improvement in price and it is unclear that there was an increase in access to credit as a result of these changes.  Borrowers reported their lenders were unable or unwilling to modify or adjust repayment terms.

Since 2008, lending standards in the private student loan market have tightened.  Lenders are not able to easily sell off the student loans they originate, so they have more “skin in the game” when it comes to the borrower’s ability to repay. 

In 2011, 90 percent of private student loans had a creditworthy co-signer, compared to only 67 percent in 2008. The credit scores of those obtaining student loans in the past few years have risen.  More than 90 percent of loans are now reviewed by a school financial aid office to make sure that loan amounts match financial need.

Recommendations 

As part of the study, the CFPB and Department of Education each offered common-sense recommendations to reform the private student loan market to ensure that the bad practices of the past are not repeated.  

They recommended that lenders and school financial aid counselors work together in everyone’s best interest.  Borrowers should have the information they need to have a full picture of their debt obligations, and lenders need to maintain careful underwriting standards. 

They also articulated the need to take a second look at how borrowers might be able to restructure their debt in the bankruptcy process.

The CFPB launched a tool to help borrowers once they have missed monthly payments on their private or federal student loans.  The Student Loan Debt Collection Assistant is designed to help these borrowers understand their options, communicate effectively with their servicer or debt collector, and bring their loan out of default.

Because student loans are not generally dischargeable in bankruptcy, and because federal student loans have specific consumer protections guaranteed by law, it is very important for borrowers to understand their rights and responsibilities.

It doesn’t appear that the student debt problem is going to go away anytime soon. 

A new national study from Sallie Mae and Ipsos Public Affairs finds that 83 percent of college students and parents strongly agreed that higher education is an investment in the future, and that the majority are finding multiple ways to cut college costs. 

Mom and pop back away 

Students now foot an expanding share of the college tuition bill, while parents scale back compared with four years ago. Drawing from savings, income and loans, students paid 30 percent of the total cost of attendance last academic year versus 24 percent four years earlier, while parents covered 37 percent, down eight percent in the same time period. 

“Once again, we see that families recognize the value of a college education and that they are taking steps to keep college costs in line with their financial resources,” said Albert L. Lord, vice chairman and CEO, Sallie Mae, the nation’s No. 1 financial services company specializing in education. “Data confirms again and again that the investment carefully made significantly enhances the lives and livelihoods of those who complete their education.” 

The percentage of families who eliminated college choices because of cost rose to the highest level (69%) in the five years since the study began and virtually all families exercised cost-savings measures. 

How they cut 

The most common cost-savings strategies included living at home (51%), adding a roommate (55%) and reducing spending by parents (50%) and students (66%). In 2012, families continued the shift toward lower cost community college, with 29 percent enrolled, compared with 23 percent two years ago. In fact, overall, families paid five percent less for college than they did a year ago. 

“This is really a tale of the resilient American family who still see the extreme value of a college education and are finding new and creative ways to pay for it,” said Clifford Young, managing director, Ipsos Public Affairs and a principal author of the report. 

The survey 

In response to new survey questions, American families reported that students make college selections largely on their own while parents played a much greater role in deciding how to pay for it. For the first time this year, the study examined student loan borrowing by student course of study. The field with the highest percentage of borrowers was visual and performing arts (53%), followed by liberal arts (42%). 

More than two-thirds of students and parents strongly agreed that college is needed now more than ever (70%) and the path to earning more money (69%). The number of students willing to stretch themselves financially to pay for college (61%) is higher than each of the previous five years of the survey, while parents’ willingness held steady from last year (53%). 

Less than half of parents strongly agreed that they would rather borrow than not send their child to college (47% vs. 51% in 2011), whereas the percentage of students who preferred to borrow rather than not attend remained unchanged (62%). 

Grants and scholarships declined from last year’s peak, but were still higher than previous years, financing the largest portion of college bills (29%). Student borrowing funded a larger percentage of costs (18% vs. 15% in 2010), with federal student loans accounting for 13 percent, private student loans 4 percent and other types of borrowing one percent. 

Thirty-five percent of students took out education loans to pay for college: 25 percent used federal loans only, 9 percent used a mix of federal and private loans, and one percent tapped private loans only. The high usage of federal loans among students with private education loans reflects their nearly universal use of the FAFSA (98% compared to 81% overall). 

Credit card ownership by college students has dropped two years in a row. Overall, 35 percent of undergrads carried a credit card, down from 42 percent in 2010, with the sharpest drops among sophomores and juniors. Of those with a card, the average balance was $755. Thirty-three percent reported carrying no balance on their credit card. 

The 2012 nationally representative study, “How America Pays for College,” is the fifth in the series. Interviews with 801 undergraduate college students, ages 18 to 24, and 800 parents of undergraduates were conducted by telephone spring 2012. The margin of error on percentages from this survey using the whole sample is +/-2.5 percentage points with a confidence level of 95 percent. 

How much will your degree cost? Here’s one way to get a good idea. 

The U.S. Department of Education has released a new interactive loan counseling tool to provide students with financial management basics, like information about their current loan debt and estimates for student loan debt levels after graduation. 

Students can access the new resource, known as the Financial Awareness Counseling Tool here. 

“Managing student loan debt can be a difficult and confusing process for many borrowers. That's why the Obama Administration has been working to unravel the mystery of college financing and arm students and parents with the information they need to make smart educational choices," said U.S. Secretary of Education Arne Duncan. "Students need to know up front how much college will actually cost them instead of waiting to find out when the first student loan bill arrives. This new tool will help bring new transparency to the process of debt management on the front end and empower students to keep their school loan payments on track and on time after graduation.” 

Interactive tutorials 

The Financial Awareness Counseling Tool provides students with five interactive tutorials covering topics ranging from managing a budget to avoiding default. Students are able to access their individual loan history and receive personalized feedback that can help them better understand their financial obligations. 

In addition, college financial aid professionals can monitor a student’s progress in using the tool and provide assistance if necessary to help ensure they can utilize the information the site provides. 

The announcement is part of what the Obama administration says is an effort “to make college costs more transparent for education consumers.” Recently, the Education Department published its annual college cost lists, which detail schools with the highest and lowest published sticker price, schools with the highest net price once grants and scholarships are factored in, and those schools where prices are rising the fastest. 

In the coming weeks, the administration is set to release its model financial aid shopping sheet. The shopping sheet, which all institutions of higher education will be encouraged to adopt, will tell prospective students how much aid they will receive in grants and scholarships; how much they’ll need to borrow in student loans; the difference between private loans and federal student loans; and the average student loan payment after graduation.

Students who took out student loans four or five years ago are graduating into a weak job market with a mountain of debt, posing an increasing worry to both policymakers and bankers.

Earlier this year the Consumer Financial Protection Bureau reported that total student loan debt exceeded $1 trillion. It's even higher now and Eduardo, of Lakehurst, NJ, is part of that staggering total.

Eduardo says he took out student loans in 2005 to attend Full Sail University, a for-profit arts school. The loan was divided into four loans – two federal and two private. He says each has a different interest rates with one as high as seven percent. The debt quickly multiplied.

$80,000 in loans

“Originally, I only owed approximately $40k, but with interest, it has risen to $80,000 -- pretty much double,” Eduardo wrote in a ConsumerAffairs post.

Kathryn, of New York, NY, is pretty much in the same boat. She said she turned to Sallie Mae for loans because she had no co-signer and she considered them the only source of funding.

“The rates are ridiculous,” Kathryn writes. “They make it actually impossible for people/students to actually get out of debt and even make a living after they graduate.”

All of this is deeply worrying, not only to federal regulators but is also getting bankers' attention. A report from Barclays Bank shows the average debt burden for students attending a public four-year collage have risen by only $2,000 per borrower over the last 12 years, the trend is not encouraging.

And of course debt levels for students attending for-profit colleges are much higher, with those enrollments increasing sharply in recent years.

Both young and old affected

The report expresses the worry that these rising debt levels are imposing hardships on both the young, who are graduating without adequate jobs, and retirees, who have co-signed for children or grandchildren and now well past their peak earning years and, in some cases, forced out of jobs.

The report notes that borrowers who got a degree had a default rate of 3.7 percent in 2009 while the default rate for those who didn't finish their education was more than four times higher. And while all this could pose increased stress on the financial system, individuals like Eduardo and Kathryn and left holding the bag. If they had it to do over again, both would have taken a different course.

“Truth is, I'm not benefiting from the education I received at Full Sail,” Eduardo writes. Albeit entertaining and informative, I received no assistance after graduation and haven't worked in what I studied a day in my life.”

“I would have been better off struggling and working through school and finishing slower rather than borrowing money,” Kathryn concludes.

Crushing student loan debt is a growing threat to the economy. The Consumer Financial Protection Bureau reports total student loan debt in the U.S. now exceeds $1 trillion, placing a huge financial burden on new graduates.

New education programs warn students and their families of the dangers of running up college loan debt, but what about the millions of former students already struggling to make payments?

Student debt doesn't have to be a lifelong burden. It turns out there are ways to reduce or eliminate that debt, but it takes time and you must meet certain criteria. But for graduates with federal student loan balances the size of a home mortgage, the student loan forgiveness programs may offer hope.

First, the program is for federal loans, not loans from private institutions. To qualify for federal loan forgiveness, you must:

• Perform volunteer work
• Qualify for public service loan forgiveness
• Perform military service
• Teach or practice medicine in certain types of communities
• Meet other criteria specified by the forgiveness program

Encouraging good works

When Congress created the Public Service Loan Forgiveness Program, it didn't really foresee the mounting debt burden. Instead, it was really trying to encourage people to work full-time in public service jobs.

But to even be considered for the forgiveness plan, borrowers must first make 120 payments on their loan. That's 10 years worth of payments. Only then can you be considered -- and the loan must be current, it can't be in default.

The Public Service Loan Forgiveness Program is available to anyone employed by a public service company. This includes those who work in law enforcement, government agencies, the U.S. military, public health, public education, and other qualifying non-profit organizations. Even if your position at a company may not seem eligible, that's okay -- as long as the company is considered a public service company, you may still qualify.

Volunteer work

Some volunteer work also qualifies you for federal Stafford loan assistance. If you serve in Americorps for 12 months you'll receive up to $7,400 in stipends plus $4,725 to be used towards your loan. Peace Corps volunteers may apply for deferment of Stafford, Perkins and consolidation loans and partial cancellation of Perkins Loans, earning 15 percent for each year of service. If you sign up with Volunteers in Service to America (VISTA) and provide 1700 hours of service, you can receive $4725.

The forgiveness program applies to any non-defaulted loan made under the William D. Ford Federal Direct Loan Program, such as:

• Federal Direct Stafford/Ford Loans
• Federal Direct Unsubsidized Stafford Loans
• Federal Direct Unsubsidized Stafford Loans
• Federal Direct PLUS Loans
• Federal Direct Consolidation Loans

To find additional information, and determine if the organization or job you work for qualifies for public service loan forgiveness, you can contact the Federal Student Aid Information Center by calling toll-free (800) 433-3243.

Chance of additional help

Meanwhile, more help may be on the way if legislation introduced in March finds its way to President Obama's desk. The student Loan Forgiveness Act would set up a new repayment plan, capping interest rates and more importantly, converting some private student loans to federal loans.

The repayment portion caps payments at 10 percent of the borrower's discretionary income. The borrower would still have to make 10 years worth of payments before any of the loan could be forgiven.

And of course, first it has to pass Congress. The bill, H.R. 4170, has been referred to the House Subcommittee on Education and Workforce Training.

Current and future tuition costs for college can be a big mystery at times. Between the costs of housing, meals, books and incidentals, it's hard for parents to know just what they're financially in for.

In an effort to create a wider level of transparency, officials are creating a college "shopping sheet" that will allow parents and students to have an easier time navigating through school costs and financial aid information.

Vice President Joe Biden recently met with 10 college presidents from around the U.S., and all agreed to provide students with the shopping sheet in each financial aid packet that students receive.

The new initiative was first discussed back in January of 2012, as both the Education Department and the Consumer Financial Protection Bureau suggested it be mandatory for schools to provide a cost sheet with its school information. 

Congress has yet to make the shopping sheet an official regulation for schools to follow, but some college presidents said they would provide the sheet, and not wait for the official congressional ruling.

Early adopters

Representing 1.4 million students, some of the college presidents that attendend this week's meeting were from state schools in Maryland, Texas, New York, and Massachusetts. The school presidents said they would have the shopping sheet available for the 2013-2014 school year.

"This is just part of a larger strategy, but we are very excited about being an early adopter," said Nancy Zimpher, chancellor of the State University of New York System.

The shopping sheet will theoretically make the entire process of college shopping easier, as it will contain the yearly price for classes, and what monies the student is responsible for after receiving scholarships or grants.

The sheet will also list information on the school's financial aid programs, and federal loans. There will even be info on the school's rate of successful graduates, and how many students defaulted on their student loan programs.

According to the Institute of Education Sciences, 66 percent of all undergraduate students received financial aid in a study that was conducted in 2008, and it's likely that even more students use financial assistance in today's challenging economic times.

The main problem however, is that many families cannot navigate through the complex financial information and successfully apply them to tuition costs. The shopping sheet, U.S. officials say, will change the entire process of selecting a school by making informational sheets more user friendly.

"These aren’t standards," said Arne Duncan, Secretary of Education. "This is basic transparency."

Catherine Hill, President of of Vassar College said the cost sheet will make it "representative and clear" for students to compare their financial aid awards to other student awards across the U.S.-- This is helpful Hill says because students will be able to see how their financial aid awards compared to the national average of student awards.

In the past, schools have tried using a similar cost sheet, but Hill says a regulation set by Congress would bring about some needed uniformity to such information. Hill also said using this new shopping sheet shouldn't contradict any informational sheet that schools already use.

"It won’t be inconsistent with anything else we do," she said. "We send them in the direction of more information if they want more information. I liked the idea of a summary sheet, in fact."

Thousands of college students graduated over the weekend and now face an economic double whammy -- a very tough job market and crushing debt from loans to pay for their education.

As ConsumerAffairs reported in 2007, college costs have skyrocketed over the last two decades, meaning most students now must take out college loans just to get a bachelor's degree. An analysis by the New York Times reveals 94 percent of students who receive a bachelor's degree go into debt to do so.

The average college debt last year was $23,000 but many students, especially those who attend for-profit schools, can rack up much higher debt loads. Carlos, of North Hollywood, Calif., admits he was naive when he, as a graduating high school senior, was shopping for schools. He eventually settled on Westwood College, a for-profit school.

Sticker shock

“I showed up the first week and during that week a finance rep from the school said 'once you're done with this program, this will be your total debt.' It was nearly $75,000 on my student loan,” Carlos wrote in a ConsumerAffairs post.

Students who graduate from college with significant debt – if they are fortunate enough to land a job – see a large part of their paycheck going to service their education debt. It can sometimes interfere with efforts to buy a home.

Robert, of Beverly. Mass., says he and his wife have three student loans between them, but felt they could afford to buy a house because they were making “deferred” payments on their loans. However, they discovered the credit bureaus weren't reporting it that way.

“They said they will continue to report the $1,008 a month figure, which is preventing us from qualifying for our home mortgage by less than $100 a month,” Robert wrote.

Poll

A poll last November by the The Institute for College Access & Success (TICAS) found 76 percent of young adults believe that college has become harder to afford in the past five years, and nearly as many – 73 percent - say that graduates have more student debt than they can manage.

When asked about the importance of college and other education and training after high school, about eight in 10 say it is more important than a generation ago. Whether or not they have a college degree or student debt, most young people share these views and concerns.

“This survey clearly shows how young adults view higher education today: it’s more important than ever but also less affordable, and it comes with too much debt,” said Lauren Asher, president of TICAS.

The new U.S. Consumer Financial Protection Bureau (CFPB) recently sounded the alarm over rising college loan debt, noting that the total now exceeds $1 trillion. Working with the Department of Education, CFPB launched its “Know Before You Owe” campaign to education prospective students and their families about the dangers of college debt.

The agency recently designed an online “Paying For College” tool to help students with financial decision-making.

While inflation has been low for years, some things – like the cost of a college education – keep going up. The Consumer Financial Protection Bureau (CFPB) recently reported total college student-loan debt in the U.S. now exceeds $1 trillion.

When you drill down into that astronomical number, you find individual stories of students leaving school with a mountain of debt. D., of Waldorf, Md., certainly falls into that category, leaving school, he says, with more than $120,000 in student loans from Citibank.

“When I found a job, I was considered fresh out of school - newbie - not experienced in my field, which meant my salary wouldn't be as high as those with experience,” D. wrote in a ConsumerAffairs post. “By the time I had to start paying back my loans, three-quarters of what I made in a month was the minimum due for my Citi Student Loans. I tried to negotiate and decrease the minimum payment. They were not willing to work with me. My loans slowly drifted into delinquency."

Other students have posted reviews of various for-profit schools, complaining that they got no advice or counseling about the amount of debt they were taking on for their education. Do colleges and universities have an obligation to assist their students in managing their debt?

Some schools help students avoid debt

Keuka College, a private school in upstate New York, has a reputation for successfully guiding students through the financial aid process. The school boasts that it ranks in the top five in its category for students graduating with the lowest debt loads.

“Our tuition is one of the lowest when compared to our peers and other comparable institutions in the region,” said Keuka President Dr. Jorge Díaz-Herrera. “In addition, we subsidize our students’ education by providing access to financial aid and scholarships.”

According to Díaz-Herrera, Keuka often provides direct aid to students, such as merit and need-based scholarships and grants.

“Keuka’s mission and commitment to providing a high-quality education at a reasonable cost reflects its historical origins as an institution meant to prepare its students for lives of service and leadership, irrespective of financial means,” said Dr. Anne Weed, vice president for academic affairs.

Mounting pressure

Pressure may mount on other colleges and universities to do more to help students graduate without debt the size of a home mortgage. As added incentive, the issue of student debt has caught the attention of the CFPB, which now has jurisdiction over college loans.

CFPB said recently it is investigating an increasing number of consumer complaints about student loans, many of which mirror the ones posted at ConsumerAffairs.

“The CFPB is now the one-stop federal agency where all private student loan borrowers can ask questions, get information, and file a complaint about this important market,” said CFPB Director Richard Cordray.

Student loans have now surpassed credit cards as the largest source of unsecured consumer debt.

U.S. consumers went deeper into debt in February, but did not increase their credit card debt, according to the Federal Reserve.

In its monthly report, the Fed found that consumer credit grew at a slower rate, mainly because "revolving credit," the kind of debt that goes onto credit cards, continued to contract. Credit card debt was down $2.95 billion in January and another $2.21 billion in February.

Overall consumer debt, however, rose $8.73 in February after going up a revised $18.60 billion in January.

Spending on cars and college

If consumers weren't loading up their plastic, where did the increase in debt come from? According to the Fed, the two big drivers were auto loans and college loans. Those two categories grew by $10.94 billion in February.

It's very possible that consumers are spending less on credit cards because credit card companies continue to reduce customers' credit limits.

"I made an online payment today on one of my four Bank of America credit cards and noticed my available limit was much less than than established limit," Suzanne, of Austin, Tex., wrote in a post at ConsumerAffairs. "I called Bank of American credit card services to find out what the issue was. I talked with a credit counselor who said it was a credit decision, and since I carry such high balances it put them at risk! I asked about my other three credit card accounts and all of them have reduced limits, without any warning, nothing."

The fact that student loan debt is rising may also prove troubling. Policy makers have worried recently that students are taking on too much education debt and will be unable to repay it, once they graduate and look for a job.

Troubling trend

The Consumer Financial Protection Bureau (CFPB) recently reported student debt in the U.S. is actually higher than anyone thinks, putting the total at around $1 trillion. Rohit Chopra, the CFPB’s student loan ombudsman, says the bureau recently undertook an effort to determine the size of the student loan market that she says went through the same boom and bust cycle that played out in markets for mortgages and other credit products.

“Our initial findings on the size of the private student loan market are sobering,” Chopra said. “When we add in the outstanding debt in the federal student loan program, it appears that outstanding student loan debt hit the trillion dollar mark several months ago – much larger than estimates from other recent reports. It seems that this market is too big to fail.”

Student debt may be the new financial crisis. For years young people have headed off to college, paying the ever-rising tuition and fees with student loans. After graduation, in a tough job market, they find they can't repay the loans, or if they can, they can't afford anything else.

Jana, of Dorset, Vt., says her daughter left college with $150,000 in student loan debt that is now in default, and has impacted their entire family.

“My daughter, a new grad, asked for guidance from a representative of Sallie Mae and they suggested just paying the interest!” Jana wrote in a post at ConsumerAffairs.

Jana said she requested information from Sallie Mae about the loan so that new payment terms could be worked out but, even though she co-signed the loans, has been unable to get it.

“I do not understand why a bank will not follow through with such a request but only send intimidating billing material,” Jana wrote. “I find this to be harrassing. And they keep calling my parents that have also co-signed but are helpless at this point. This is very upsetting!”

Higher than anyone thinks

The Consumer Financial Protection Bureau (CFPB) says student debt in the U.S. is actually higher than anyone thinks, putting the total at around $1 trillion. Rohit Chopra, the CFPB’s student loan ombudsman, says the bureau recently undertook an effort to determine the size of the student loan market that she says went through the same boom and bust cycle that played out in markets for mortgages and other credit products.

“Our initial findings on the size of the private student loan market are sobering,” Chopra said. “When we add in the outstanding debt in the federal student loan program, it appears that outstanding student loan debt hit the trillion dollar mark several months ago – much larger than estimates from other recent reports. It seems that this market is too big to fail.”

Fast-growing debt

Unlike other consumer credit products, Chopra says student debt keeps growing at a steady clip. Students borrowed $117 billion in just federal student loans last year. And students continue to borrow private student loans, which lack the income-based repayment and deferment options of federal student loans.

“If current trends continue, there will be consequences not just for young people, but for all of us,” she said.

According to data from the Department of Education, federal student loan debt isn’t growing just with new originations – with so many borrowers unable to keep up with interest payments, debt is growing even for many who have left school.

And it's not just students and their families who are affected, Chopra warns. Large levels of debt might also pose immediate problems for the rest of us.

Could affect housing recovery

“Excessive student debt can slow the recovery of the housing market,” she said. “Student loan borrowers are sending big payments every month to their loan servicers, rather than becoming first-time homebuyers. This debt can also put added stress on the borrowing capacity of the household and government sector.”

CFPB said it is working with the Department of Education to educated students about the dangers of racking up to much college loan debt. It's also supervising private student loan providers to ensure they comply with Federal consumer financial protection laws.

Here's some sobering news: one in four consumers with student loan balances were late on at least one payment in the third quarter of last year.

The report from the New York Federal Reserve Bank showed a dramatic increase in past dues because the bank, for the first time, excluded students still in school and exempt from making payments.

No surprise

This perhaps isn't news for regular readers of ConsumerAffairs. In the last few years consumers have increasingly reported the burden of paying back loans - many times used to pay for for-profit colleges - in a soft economy.

"My son enrolled at this school (ITT Technical) in their multi-media course," Peggy, of Clarkston, Mich., posted at ConsumerAffairs. "They promised help with obtaining a job, which they haven't done. He has been out of school for two years and can't find a job. I believe that they oversold their school. Some of his classes didn't even have a qualified teacher, and he became frustrated with them. Now he owes so much money for student loans and can't find a job."

Others, like Holly, of Sound Beach, N.Y., report difficulty in making payments for the loans they accumulated as they sought an education, even when they do find employment.

"I am a 26 year old female who has had the run around with Citibank for two years now," Holly wrote. "I have called numerous times trying to set something up, seeing as I was making under $25,000 a year. They want me to pay $600 a month minimum. Yeah, okay, who can do that nowadays?"

Be realistic

Stories abound of students graduating with six-figure loans but with relatively low-paying jobs. Guidance counselors repeatedly stress the need to be realistic, matching your student loan requirements with your employment prospects upon graduation.

For example, a large number of consumers writing to ConsumerAffairs have revealed they enrolled in a for-profit college to obtain a two-year associates degree. While the for-profit institutions charged as much as $40,000, the same degrees are available at state-supported community colleges at a fraction of the cost.

A big hurdle to getting a college education is finding a way to pay for it. It also helps if you choose the right school. Where do you turn to for advice?

Wichita State University has launched a free online course for prospective students that teaches personal financial management topics for students who are new to college and or considering college. 

Choosing the right college

Part one of the course helps students and families make wise decisions about which college to attend and how to pay for it. Lisa, of Owensboro, Ky., might have benefited from such a course.

“I had talked to an advisor that sugar coated everything to do with University of Phoenix,” Lisa told ConsumerAffairs.com. “Once I started taking the classes on line, if I needed help, the instructors weren't there to help. I had a sick granddaughter I was raising. It got to the point where I couldn't get on line to take the classes. I've ended up with $11000 in student loans.”

Luana, of Newark, N.J., enrolled in a for-profit college to pursue an associates degree, when a community college would have been a fraction of the cost.

“I was happy looking forward to get my associates degree with a technical course and avoided the idea of going to a regular county college for the same credits,” Luana said. “Turns out, no institution accepts my credit and at 24 I have to start over, from scratch, as if I had just graduated high school and attend a county college which is something I should have done from the get-go and saved $35,000 tuition that I paid to attend Gibbs College.”

Using money wisely

Part two of the free website helps students wisely manage money while in college and beyond. The course includes "game-ification" features and also allows users to post status updates about their progress in the course to Facebook and Twitter.

Money for the website comes from the federally funded College Access Challenge Grant, the purpose of which is to promote college completion by providing financial literacy education.

"Given the growing public concern with the cost of attending college and the fact that financial difficulties force many students to discontinue their studies, financial literacy education is critical to national efforts to educate more students," said Keith Pickus, interim provost at Wichita State.

Financial literacy is key

Liz Weston, a nationally syndicated personal finance columnist, agrees that financial literacy is necessary for a student's future. She says a college education is an essential first step for a person who wants to build a secure future.

"But the value of that degree is undermined when students and their families go too far into debt to get it," Weston said. "Students and their families need to make smart choices about getting an education they can afford. Students also need to make sure they manage their money wisely while they're in college so they don't graduate with piles of credit card or other debt. Financial literacy courses can help people make good decisions in college and afterward."

The Consumer Financial Protection Bureau (CFPB), created by the Dodd Frank Financial Reform Act, has set its sights on student loans as one of its first major areas of consumer protection.

The new agency is teaming with the Department of Education to launch a new a program called Know Before You Owe, aimed at creating a ”financial aid shopping sheet,” which colleges and universities could use to help students better understand the type and amount of aid they qualify for and easily compare aid packages offered by different institutions.

The draft shopping sheet – a model financial aid disclosure form – makes the costs and risks of student loans clear upfront, before students have enrolled, outlining their total estimated student loan debt and monthly loan payments after graduation.

Better informed decisions

The objective is to reduce the number of students who emerge from colleges and universities saddled with massive debt. Also, to reduce the number of students like recent University of Phoenix graduate Theresa, of Irvine, Calif., who has a case of graduate's remorse.

“I received a Bachelors Degree in Business Administration,” Theresa told ConsumerAffairs.com. “The potential employers do not view University of Phoenix a scholastic institution. My degree is worthless in the business world. The college credits will not transfer to other institutions. And I have a student loan debt of over $30,000.00. The time and money spent to obtain what I considered one of the biggest achievements were all wasted.”

“Student loans are one of the best examples of how credit can make lives better and help people achieve the American dream,” said Raj Date, Special Advisor to the Secretary of the Treasury for the CFPB. “But in these tough economic times, the stakes have never been higher for students and their families to clearly understand the costs and risks of student loans. Having a simple, one-page financial aid shopping sheet would help students compare offers and choose the one that’s right for them.”

Surpassing credit cards

Student loans have now surpassed credit cards as the No. 1 source of U.S. household debt outside of mortgages. In part, this is because more students are accessing higher education. But it’s also because tuition is increasing.

At public colleges, tuition and fees are increasing by an average of 5.6 percent per year beyond the rate of general inflation. While federal funding for Pell Grants and education tax credits has kept net prices – what students ultimately pay after grants and scholarships – relatively steady, many students are covering these rising tuition costs by taking on more debt.

The complex and confusing financial aid process can make it difficult for students to understand college costs, evaluate loan options, and figure out how much debt to take on. Currently, prospective students too often receive jargon-laden financial aid award letters using inconsistent terms and calculations, making it hard to compare them side by side.

Information about the total debt, interest, and monthly payments of student loans may not be clear or may not be included at all. This may be an important reason why many students are choosing higher-priced private loans before exhausting subsidized federal loan options. Or students and their families may resort to credit cards and other debt products when better options are available.

To ensure that the financial aid shopping sheet is helpful to students and their families, the CFPB is putting it online and will provide the public with an opportunity to rank items in order of usefulness. The CFPB and Department of Education will use the feedback on this draft version to improve the shopping sheet. The Department of Education plans to publish a model form that schools could use to provide clear student loan and financial aid information to prospective students.

There has probably never been a greater need for education and retraining, but the cost of obtaining it is soaring. The cost is especially high if you have to borrow the money.

A new report from the Federal Reserve Bank of New York says U.S. students are borrowing a startlingly large amount of money to pay for an education, strapping themselves with a huge debt as they begin careers when jobs are hard to come by.

Students and workers seeking retraining are borrowing extraordinary amounts of money through federal loan programs, potentially putting a huge burden on the backs of young people looking for jobs and trying to start careers. The Fed reports new student loans totaled more than $100 billion in 2010, and by the end of this year the amount of all outstanding student loan debt will reach $1 trillion.

Doubled in five years

While consumers have cut credit card and mortgage debt lately, total outstanding student debt has doubled in the last five years.

The debt, and the problems is causes, is a common theme in complaints to ConsumerAffairs.com. Tiffany, of Cumberland, Md., said her mother's parent loan through Sallie Mae to pay for her education started out at $9,000 and was placed on a “deferment.”

“Today we got another statement in the mail saying we owe a total of almost $20,000,” Tiffany told ConsumerAffairs.com. “I don't understand how this company can add interest during a deferment that lasts until May of 2012! It'll take me about ten years to pay off the 20 grand and I will never be able to own a car or move out of my mother's house, at least not until I'm 32 years old anyway.”

The cost of private education has skyrocketed in recent years as schools have spent money to attract the most gifted students. Costs at public colleges and university have also risen, in part because state funding hasn't kept pace with the spending.

For-profit colleges

The growth of for-profit colleges has also helped run up the loan totals. Theresa took out student loans to attend the for-profit University of Phoenix, but now has buyer's remorse.

“I received a bachelors degree in business administration from UOP,” Theresa told ConsumerAffairs.com. “Potential employers do not view University of Phoenix as a scholastic institution. My degree is worthless in the business world. It is a joke. The college credits will not transfer to other institutions. And I have a student loan debt of over $30,000.00. The time and money spent to obtain what I considered one of the biggest achievements were all wasted.”

Students who leave school with crushing debt will not easily be able to default. Congress has written the law so that the debt must eventually be paid. It doesn't even go away in bankruptcy. That means millions of people will be working a good portion of their adult lives to pay back their loans.

High default rates

The government says the highest default rates are on loans for for-profit institutions, which tend to serve a low-income student body. Recent immigrants who are trying to enhance their workplace skills also often turn to these institutions.

Financial advisors, meanwhile, urge prospective students to consider a community college, which is acknowledged as one of the best values in education. The cost of two-years at a community college is often a fraction of what it costs a traditional four-year or for-profit colleges.

A federal class action accuses the for-profit Richmond School of Health and Technology (RSHT) of targeting poor and black students and using their student loans as its "source for cash."

The suit calls the Richmond, Va., school - which got 86 percent of its income from financial aid programs in 2008-2009 - "a sham," which "exists to make money without any regard for the education its students receive in exchange."

The suit charges that the school makes its money by enrolling almost exclusively students who receive federal financial aid, mostly consisting of student loans.

Most students leave RSHT "saddled with large debts … without the prerequisites and knowledge to obtain a license and/or a job in their field of study," the class action charges.

This, the suit says, often leads to students defaulting on their student loans, which destroys their credit ratings and impairs their ability to get credit and to pass workplace background checks in the future.

School earns an 'F'

"RSHT does well in earning money off its students, but it earns an 'F' in serving their educational interests because it is concerned only with profit, not education," the complaint alleges.

In the suit, Mary Morgan, 49, of Richmond says she was a student in the school's Community Home Health program. Amanda Smith, 28, was a student in the Surgical Technology program.

Morgan paid $10,000, most of it with federal student loans and Pell Grants after the school persuaded her that taking the home health program would qualify her for a "license in community home health" and that this credential would be "higher" than the Certified Nurse Aid (CNA) license she had previously held, the suit says. In fact, no such certification in community home health exists in Virginia.

Smith received $20,000 iin federal financial aid, all of it student loans, based on the school's allegedly telling her the course would enable her to become a license surgical technician, but Smith said the training she received "was not remotely sufficient" to prepare her for the written exam. She was able to pass only through self-study, she said.

Smith said RSHT also failed to arrange the surgical internship she needed to be licensed. She arranged an internship at a surgical center on her own but RSHT failed to follow through and, as a result, Smith did not get the internship and cannot get her license, she said.

Tougher rules

RSHT is one of about 2,000 for-profit colleges in the country that will soon be facing tougher regulations if they want to continue receiving federal funds.

The U.S. Department of Education recently issued a new rule that sets a standard for these schools: their programs have to ensure graduates can earn enough to pay off the hefty student loans they must carry to pay for their enrollment.  But consumer advocates say the rule doesn't go far enough.

The RSHT suit charges the school with violating the Equal Credit Opportunity Act, the Virginia Consumer Protection Act, breach of contract and fraudulent inducemnt. It was filed in U.S. District Court in Washington, D.C., by attorneys John Relman and Glenn Schlactus.

College gets more expensive every year and paying for it isn't easy. But before signing up for student loans, you might heed some words of advice from Detroit-area bankruptcy attorney Michael Greiner.

If financial crisis strikes, you may be forced to declare bankruptcy. But student loans can't be charged off in a bankruptcy. By law they must be repaid.

With many parents applying for financial aid for their college-aged children, Greiner says this fact is rarely considered. And with the cost of college going up, and colleges expecting more and more of their expenses to be paid for with debt rather than grants, many parents and students are finding that most of their debt is non-dischargeable student loans.

"Every day I have someone come into my office with a mountain of debt," said Warren. "It is often heartbreaking to see that there is nothing I can do for these people."

Private loans

Greiner also pointed out that more and more of the student loans available are private student loans, not backed by the government. He says Sallie Mae has even gotten into the act of financing private student loans.

"The interest rates on these private loans are typically much higher than for government student loans,” he said.

When considering a student loan, Greiner says applicants must read the fine print and stay away from private student loans. Just because a loan is from Sallie Mae or similar entity, doesn't mean it is a lower interest loan, he says.

Check the fine print to make sure you're not getting a private student loan with high interest rates. In fact, student loans that are not financed by the U.S. Department of Education are likely higher interest, private student loans.

Greiner says a home equity loan, and even some credit cards, would be a better alternative to a private student loan. In a bankruptcy proceeding, they will be dischargeable while a student loan won't.

Don't delay repayment

One often-cited advantage of student loans is the ability to defer payments, but Greiner says the deferred repayment doesn't stop interest from increasing. In fact, even for relatively low-interest student loans, with compounding interest, deferrals can take a manageable debt load and make it unmanageable relatively quickly.

Greiner said that many students are graduating from college getting jobs that barely enable them to pay their student loans and nothing else.

"This is one of the untold stories about the economic crisis," Greiner said. "Though the government has taken steps to address this problem, it is still too little, too late."

Just as fashion and other trends tend to differ across generations, the kind of financial product best suited for someone nearing retirement may not be the best kind of product for someone just starting out in the workplace.

First and foremost, when you’re at the start of your career, chances are you’re younger -- possibly just out of college -- looking for a place to rent, not buy, and still trying to figure out how you’re going to pay back those student loans that let you slide while you were still in school.

How-to guide

Fortunately, WalletPop -- a consumer finance site -- talked to some experts who have sifted through the myriad of financial products and services available today to find those that would most benefit a young person just starting out on his or her own. So if this applies to you, here’s what they say you should consider as well as what you may want to leave behind:

Banking

If you’re just starting out, you may want to consider a bank or credit union checking account instead of a pre-paid debit card. That way you can write checks for rent and other bills. If you don't already have a relationship with a bank, or if your parents don't recommend theirs, shop around. Ask for information about minimum-balance fees, out-of-network ATM fees and monthly maintenance fees. Ideally, you want to find a financial institution where the fees for all of these are zero and they are there.

One good source is the local credit union, since they often have lower fees than banks. Also, if you're worried that you won't be able to control or keep track of your spending, turn down that offer of overdraft "protection," which could cost you close to $30 every time you spend more than the amount in your account when making a debit purchase.

As for those prepaid debit cards, although they promise to function just like a bank or credit union deposit account, they have some drawbacks in terms of consumer protections. They also tend to be much more expensive than checking accounts, with monthly fees and charges for activities like checking your balance or speaking to a customer service rep that are usually free at banks and credit unions.

Credit cards

When selecting a credit card, pick one with a low limit and a low APR.  John Ulzheimer, president of consumer education at SmartCredit.com, says of young adults entering the credit card market should ask for a card with a modest credit limit and resist the urge to take all the credit a company is willing to offer unless they're certain they can use that card without abusing the limit.

In addition to a modest limit, young people should search for cards with low fees and interest rates rather than gravitating toward the flashier reward cards.

Retirement planning

It’s never too early to start saving for retirement so select a 401(k) or Roth IRA that contains no-load mutual funds, index or structured funds. Stay away from retirement accounts with actively managed funds.

When you’re in your 20s, you probably don't have a lot of extra cash to throw around at this point. So investing even a small amount has two big benefits: First, you'll get into the habit of putting away money toward your retirement, despite how far-off that may seem in the present day. Second, even a small amount will grow over time, and the longer it's in an investment account, the more it will grow.

Experts say if your employer offers a 401(k) with matching funds, that's your best bet. It's essentially free money, so it's worth skimping a little on your day-to-day expenses to get that. If you don't have the option of a 401(k) plan at your job, or if you've done your research and don't like the financial offerings you can get through it, then it's time to consider a Roth IRA.

Unlike a 401(k), the money you put into a Roth IRA goes in after taxes, so you don't get the tax break you'd get with a 401(k). But on the plus side, you won't have to pay taxes when you withdraw the money decades in the future. Don Chambers, author of Money Basics for Young Adults, believes in index and structured funds versus a more actively-managed fund that commands higher fees. Plus he says they don't always yield better returns than their cheaper counterparts. And, if you're not an investment expert, learning the ins and outs of the investment marketplace can be practically a second job, which probably isn't a burden you want to take on during a time in your life when you might already have a second job.

That said, it's safer for you than for someone a generation older to invest in riskier asset classes like small-cap funds, emerging markets and value stocks, since you have plenty of time for any loss to reverse itself before you need to access your money. At the very least, if you don't think you can lock up your money for an extended period in a 401(k) or other retirement account, open a money market account.

This lets you earn a better rate of interest than an ordinary checking account but doesn't penalize you for withdrawing it or closing the account if you're saving for something like emergency medical expenses or a down payment for a house.

Health insurance

When it comes to health insurance and you are in relatively good health, choose a high deductible. Health insurance is important even if you’re healthy, but something as mundane as a broken arm could derail your financial stability for years. Health care bills are a major cause of bankruptcy. But since you’re young and most likely healthy, though, you might be a good candidate for a higher-deductible plan.

The important thing to remember here is to save enough money to cover that deductible if you need it. If you’re company offers a health savings plan, you could save money there tax free.

Renters insurance

You might not think your stuff is worth much, but if you're in an apartment building, and your computer, iPad or digital camera are swiped, you could be a few thousand bucks. If another tenant starts a fire or floods the bathroom, you'll have a much more difficult time replacing everything if you don't have insurance. Before shopping around, check with your car insurer first: some will give you a discount if your car is insured with them, too.

January is not just the month in which you gather your tax records together for tax-filing season. If you plan to attend college in the fall, this is the time to start your search for financial aid.

That search should start with the Free Federal Application for Federal Student Aid (FAFSA). This government-maintained website will walk you step by step through the process, allowing you to apply for Pell Grants, work-study programs and other sources of student financial aid.

An important thing to note at the beginning of the process: the official website address for FAFSA is farsa.ed.gov, not ".com." And as the name implies, this application is free. There is no reason to pay anyone any type of fee for access to this information.

If you go to a ".com" site, you will probably be asked to pay to submit the FAFSA. Remember, this is a free service, so use the official government site to submit your application.

Create an account

When you go to the official FAFSA site, the first step is to create an account using MyFSA. MyFSA is your personal portfolio. When you create your account, the site will provide you with a MyFSA account in which to store all your information.

Completing the application is the first step to be considered for nine federal student aid programs and 605 other state and private institutional aid that is available to college students. The U.S. Department of Education (DOE) begins accepting applications on January 1 each year for the upcoming fall semester.

The application period is up to 18 months long. Most of the aid packages and grants are provided on a first come, first-served basis, so it's wise to submit an application as early as possible.

Federal Student Aid

The aid all eligible individuals can benefit from federally funded financial assistance for education beyond high school. According to DOE, Federal Student Aid plays a central and essential role in supporting postsecondary education by providing money for college to eligible students and families. The government partners with postsecondary schools, financial institutions and others to deliver services that help students and families who are paying for college.

Federal Student Aid performs the following roles:

• Educating students and families on the process of obtaining aid;

• Processing millions of student financial aid applications each year;

• Disbursing billions of dollars in aid funds to students through schools;

• Enforcing financial aid rules and regulations;

• Servicing millions of student loan accounts, and securing repayment from borrowers who have defaulted on their loans; and

• Operating information technology systems and tools that manage billions in student aid dollars.

Three ways to apply

Applicants can use any one of three methods to apply. DOE recommends using the online application, but you can also download and print an application to fill out and send by mail. You may also request a paper FAFSA by calling 1-800-4-FED-AID (1-800-433-3243) or 319-337-5665. If you are hearing impaired, please contact the TTY line at 1-800-730-8913.

When applying, select the school year for which you are applying for financial aid. For example, if you plan to attend college between July 1, 2011 and June 30, 2012, click The 2011-2012 School Year (July 1, 2011 - June 30, 2012). If you plan to attend college between July 1, 2010 and June 30, 2011, click the other link. If you are applying for a summer session, check with your college to verify which application you should complete.

The application consists of more than 100 questions regarding a student, and their family's assets, income and dependency. This information is used to determine what is called the Expected Family Contribution (EFC).

Factors comprising the EFC include household size, income, number of students of the household in college and assets.

On the FAFSA website you'll find a tool for discovering the deadlines for each college in the country. Make sure you know the deadlines for the schools you are applying to and file well in advance.

How much?

How much aid can you receive? It will vary, depending on the grant and your circumstances. Students with low EFCs may receive a Pell Grant of up to $5.500. If you qualify for a work-study program, you can get part-time work and the federal government will reimburse your employer up to 75 percent of your pay.

If you qualify for a Stafford Loan, the government will pay the interest while you are enrolled. The student, of course, must repay the principal. A Perkins Loan is much like a Stafford Loan, but is lent by the school directly.

The default rates for student borrowers are considerably higher for those who attended public schools than those who attended private ones. Due to a lackluster economic turnaround and high unemployment, it's no surprise that student borrowers are struggling to make loan payments.

Financing tips

Financial experts at Money Management International (MMI) are offering the following tips for managing the cost of a higher education:

• Look for scholarships. Scholarships are the best way to pay for school; it's free money that doesn't require repayment. There are several online sources to help students find great scholarships, such as FastWeb, FinAid, and the Financial Aid Resource Center.

• Apply for federal grants. Obtaining a grant is another way to pay for college with free money. To secure federal grants fill out the Free Application for Federal Student Aid (FAFSA). Also, check out the Academic Competitiveness Grant or the National Science and Mathematics Access to Retain Talent or SMART grant.

Easier said than done, according to some of the folks who have written ConsumerAffairs.com.

"They (U.S. Department of Education) hold my student loan and refuse to come to an agreement about a monthly payment," writes Catherine of Rhinelander, WI. "They stated they want a debit or credit card number or my checking account number, which I will not do. They just refuse to work with me with me not being willing to give my checking account number. It's impossible to get this debt taken care of."

Mary of Jamestown, KY, found herself in a Catch-22 situation. "Young people that can't afford to go to college have left home and are working can't apply for a Pell Grant based on their own income but must show their parents tax returns as their own income until they are 25 years old," she tells ConsumerAffairs.com. "Now isn't that clever it looks like cheap way to cheat this country out of giving a fair chance for an education. Who benefits from taxes anyway?"

• Choose the right school. Sometimes affording tuition is as easy as choosing a school that fits your family's budget. It is cheaper to go to school in-state vs. out-of-state. Also consider a public funded school over a private school. Students can find a college cost comparison tool and apply for financial aid.

• Finally, consider an alternative program. "There are other programs that are just as rewarding, but cost significantly less than a university program," said Cate Williams, vice president of financial literacy for MMI. "For example, instead of a four year nursing degree that could cost up to $40,000, consider a certification program in respiratory therapy at a community college for only $27,300."

The national default rate for fiscal year 2008 -- the most recent period for which statistics are available -- is seven percent, propelled higher by an 11.6 percent default rate for for-profit schools. In comparison, the default rate at public colleges and universities is six percent and four percent for private, non-profit schools.

The default rate is a snapshot in time, representing the borrowers whose first loan repayments came due between October 1, 2007, and September 30, 2008, and who defaulted before September 30, 2009. During this time, almost 3.4 million borrowers entered repayment, and more than 238,000 defaulted on their loans.

They attended 5,860 participating institutions. Borrowers who default after their first two years of repayment are not measured as defaulters in today's data.

Students are struggling

"This data confirms what we already know: that many students are struggling to pay back their student loans during very difficult economic times. That's why the administration has expanded programs like income based repayment and Pell grants to help students in financial need," said U.S. Secretary of Education Arne Duncan.

Duncan also expressed concern about the high rate of default among students attending for-profit schools, whom he says are the most likely to be unable to repay.

"While for-profit schools have profited and prospered thanks to federal dollars, some of their students have not," Duncan said. "Far too many for-profit schools are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use. This is a disservice to students and taxpayers, and undermines the valuable work being done by the for-profit education industry as a whole."

Over the summer the Obama administration proposed new rules to regulate federal aid to for-profit schools, arguing most of the money was going to the institutions' bottom line. Last month the The Senate Committee on Health, Labor, Education and Pensions held hearings on recruitment practices at these institutions.

Complaints mount

The federal government is turning its attention to these institutions as complaints mount. A recent General Accountability Office (GAO) report was sharply critical of recruiting practices at some for-profit colleges, saying some recruiters lie and urge aid applicants to commit fraud. In recent months ConsumerAffairs.com has received a number of complaints about the issues the committee is addressing.

Jodi of Brigham City, Utah, said she applied to the University of Phoenix in May of 2009 and was told to apply for financial aid. Jodi wanted to avoid getting buried in debt and was hoping to receive a generous Pell Grant to help with the school's $8,000 tuition.

Jodi said that as classes were about to begin, the recruiter called and told her that, based on her score, she would probably qualify for aid, and to go ahead and begin classes, even though nothing had been determined.

"I asked her what would happen if I didn't get aid, and she replied again that things looked really good for me and to go ahead and start because the first block was taken care of," Jodi told ConsumerAffairs.com.

Surprise!

Jodi said once she started classes she learned that her Pell Grant amounted to only $1200 and the rest would have to be covered in student loans. When she attempted to drop out, Jodi says she was told there would be a big financial penalty. She said she also learned that the loan money had already been disbursed, without her permission.

"First of all, when a person applies for credit, they should not be forced to accept the highest amount offered," Jodi said. "I told Janet (the recruiter) during the week of June 8 that if I didn't get a lot in Pell that I couldn't accept the loan. She said my aid would be fine. They should not be allowing anyone to begin classes at their school without the student seeing what aid they can get."

For-profits lead

In its latest report on loan defaults, DOE notes that students at for-profit schools represented 26 percent of the borrower population and 43 percent of all defaulters. The median federal student loan debt carried by students earning associate degrees at for-profit institutions was $14,000. The majority of students at community colleges do not borrow.

Under current rules, all schools with default rates of 25 percent or greater for three consecutive years face loss of eligibility in the federal student aid programs. This year, two schools are affected by this provision: Charleston School of Beauty Culture, Charleston, W. Va.; and Human Resource Development & Employment-Stanley Technical Institute of Clarksburg, W.Va.

Schools with a default rate greater than 40 percent in the latest year may lose eligibility to participate in the federal loan programs. This year three schools are subject to this provision: Cuttin' Up Beauty Academy, Denver; Academy of Healing Arts, Las Vegas; and Clinton Junior College, Rock Hill, S.C.

At a time when the cost of many things are actually going down, the price of a college education continues to go up.

Tuition costs at the average four year public college rose 6.5 percent, to just over $7,000, according to a report by the College Board. The board attributed the hike in tuition costs to declines in state support and endowment declines.

The financial difficulties facing households across the nation are putting increased pressure on financial aid budgets, the report said. Although grant aid also rose significantly in 2008-09, the latest year for which data are available, student borrowing continues to increase, as does the gap between available resources and the overall cost of attending college.

Trends in College Pricing 2009 and Trends in Student Aid 2009 provide insight into how colleges and universities and their students are grappling with recent economic pressures.

"It is vital that we assure access to a high-quality college education for all students," said College Board President Gaston Caperton. "While a college education is critical to long-term financial security, it feels out of reach to many students and families in today's economy."

Colleges want more aid

Caperton said states and institutions must increase their efforts to reduce costs and to prevent tuition from rising as rapidly as it has in the past.

"We must provide generous financial aid for those who most need the funds and help students and families to understand the wide array of options available to them in our diverse educational system," he said.

The average published price of tuition and fees for in-state students at four-year public colleges in the U.S. is $7,020 in 2009-10, $429 higher than a year ago. After adjusting for inflation, the average net price paid for tuition and fees by public four-year college students overall is lower in 2009-10 than it was five years ago -- but higher than it was last year.

Like published prices for tuition and fees, expenses for food, housing, books and supplies, and other living costs continue to rise more rapidly than the rate of inflation, and only at public two-year colleges does grant aid for the average student stretch beyond tuition and fees.

Community colleges a better value

Undergraduate tuition and fees at public two-year colleges in 2009-10 average $2,544, compared to $5,930 at public colleges awarding baccalaureate degrees, $6,094 at public masters universities, and $7,797 at public doctorate-granting universities.

In the private not-for-profit sector, tuition and fees average $24,040 at baccalaureate colleges, $23,700 at masters universities, and $32,349 at doctorate-granting universities. About 19 percent of full-time private college students are enrolled in institutions with published prices below $18,000, and 20 percent attend institutions with prices $36,000 or higher.

Grant aid increasing 3.4 percent per year

About two-thirds of full-time undergraduates receive grants. In 2008-09, they received an average of $5,041 in grant aid per full-time equivalent student, supplemented by $4,585 in federal loans. Forty-one percent of all grant aid to postsecondary students was provided by colleges and universities, 32 percent by the federal government, 11 percent by states, and 16 percent by employers and other private sources. Over the decade from 1998-99 through 2008-09, grant aid per undergraduate student increased at an average of 3.4 percent per year after adjusting for inflation.

In 2007-08, public four-year institutions distributed about two-thirds of their institutional grant aid without regard to financial circumstances. Students from families with incomes below $32,500 received an average of $700 in non-need-based and $830 in need-based institutional grant aid, compared to $940 and $300, respectively, for those from families with incomes between $60,000 and $100,000. Students at private not-for-profit four-year institutions receive significantly more institutional grant aid than do those at public colleges and universities, and the patterns of that aid differ considerably at institutions with different prices.

A four-month investigation found that Clearwater, Florida-based Student Financial Services Inc. (SFS), which also operates under the banner of University Financial Services (UFS), had agreed to pay some of the nations top universities, school athletic departments, and sports marketing firms for generating loan applications, in a kickback scheme euphemistically known as revenue sharing.

The company had contracts at 63 colleges nationwide, 57 of which are National Collegiate Athletic Association (NCAA) Division I schools.

Under these agreements, the company also paid for the rights to use school names, team names, colors, mascots, and logos to advertise their loans directly to students. This practice, known as co-branding, was intended to imply that the company was the official lender of the school, or that it was actually a part of the school. Schools, athletic departments, and sports marketing firms made these agreements without evaluating the quality of the loans.

When lenders use deceptive techniques to advertise their loans, they are playing a dangerous game with a students future, said Cuomo. Student loan companies incorporate school insignia and colors into advertisements because they know students are more likely to trust a lender if its loan appears to be approved by their college.

"We cannot allow lenders to exploit this trust with deceptive, co-branded marketing. A student loan is a very serious financial commitment, and choosing the wrong loan can lead to devastating consequences, he said.

Under the settlement, which was joined by Florida Attorney General Bill McCollum, SFS has agreed to:

• End all lending-related agreements at a total of sixty-three schools including Georgetown University, Wake Forest University, University of Kansas, Central Michigan University, St. Johns University, University of Washington, University of Oregon, University of Texas El Paso, Rutgers University, Georgia Tech, Florida State University, Florida Atlantic University, the University of Central Florida, and the University of Pittsburgh. SFS has until December 31, 2007 to comply;

• End all lending-related agreements with five sports marketing companies that, in some instances, were sold the right to market the schools insignia, colors, and mascot, and in turn signed an agreement with SFS. These companies are ESPN Regional Television, Inc., International Sports Properties, Inc., Host Communications, Nelligan Sports Marketing, Inc., and Learfield Communications, Inc. SFS has until December 31, 2007, to comply;

• Launch a print advertising campaign at 63 schools alerting students through their top-circulating newspapers that they must protect themselves when shopping for a loan;

• End the practice of cash-based inducements, including paying students up to $50 to refer their peers to the company and encouraging students to apply for SFS loans by creating contests where they could win up to $1,000.

Also under the settlement, SFS has agreed to adopt a new Code of Conduct that prevents false and misleading direct loan marketing to students. The Code expressly prohibits lenders and marketers from buying rights to a college or universitys name, team name, colors, logo, and mascot for loan marketing purposes.

It also requires lenders and marketers to provide important disclosures to students in connection with loan transactions and prohibits a variety of misleading and deceptive practices identified by the investigation of the industry.

This settlement resulted from Cuomos findings that Ellen Frishberg, the director of student financial services at Johns Hopkins University, was improperly promoting a lender, Student Loan Xpress, after the company paid her more than $65,000 in consulting fees and tuition payments.

The agreement marks the latest fallout from Cuomos nationwide investigation into conflicts of interest in the $85 billion-a-year student loan industry.

Ellen Frishbergs conduct while leading the financial aid office of Johns Hopkins ranks among the worst we have seen at any school across the country. Her work was mired with conflicts of interest, deception, and unethical behavior, said Cuomo. Todays settlement brings to an end a sad chapter in Johns Hopkins history and sets in place a monitoring regimen to ensure this never happens again.

Under the terms of the agreement, Johns Hopkins will adopt Cuomos Code of Conduct, and pay $1.125 million. Of the $1.125 million, $562, 500 will be paid into the New York Attorney Generals national education fund.

The remaining $562,500 will be used to implement a similar program to be overseen by the Maryland Attorney Generals office. Johns Hopkins has also agreed to have its financial aid procedures monitored for a period of five years by both Attorney General Cuomo and the Maryland Attorney General.

The transactions involving Ellen Frishberg, the director of student financial services at Johns Hopkins University, and Student Loan Xpress (SLX), one of the largest student loan companies nationwide, were uncovered as part of Cuomos investigation.

Ellen Frishberg accepted more than $65,000 in consulting fees and tuition payments from Student LoanXpress. Frishberg also took payments from other lenders as detailed in the settlement agreement. The transactions took place between 2002 and 2006. During these years, Frishberg failed to disclose these payments and activities, and actively provided marketing promotion and other support for SLX.

Lunches, Gifts, Entertainment

Cuomos ongoing nationwide probe has exposed, among other things, that lenders pay financial school aid advisors for entertainment, meals, holiday lunches and make office and individual gifts.

Lenders have also provided goods, services, or payments to the Universities related to the lending program, including certain office supplies, brochures, information in hard copy and available to students electronically, support for job fairs, workshops for students and employees, awards and promotions, and printing and distribution of brochures.

This agreement, together with the recent announcement that Columbia University agreed to adopt Cuomos Code of Conduct, and pay $1.125 million into a national education fund is tremendous progress in achieving solutions to the student lending crisis.

Twenty-six schools and the nations top-five lenders (seven lenders in all) have now reached agreements with Cuomo.

Earlier this week, California Attorney General Edmund G. Brown Jr. demanded two California student-loan businesses produce records concerning their financial relationships with public and private universities, and vocational schools in California as part of his ongoing probe into the student-loan industry.

In the New York probe, Education Finance Partners (EFP) agreed to Cuomo's College Loan Code of Conduct and will end revenue sharing agreements. Cuomo also announced settlement agreements with three more schools: Salve Regina in Rhode Island, Pace University and the New York Institute of Technology. Salve Regina and Molloy College both had revenue sharing agreements with EFP.

Previously, Fordham University, St. John's University, and Long Island University all agreed to cease their revenue sharing agreements with EFP and reimburse students on a pro rata basis for the money received through those agreements.

Drexel received over $124,000 from its revenue sharing agreements with EFP and accrued $126,000 more through March 2007 that has not been paid. Under Drexel's agreement with EFP, dated April 1, 2006, the school agreed to make EFP its "sole preferred private loan provider."

In return, Drexel was to receive 75 basis points (.75 percent) of the net value of referred loans between $1 and $24,999,999; and 100 basis point (1 percent) of all loan amounts of $25,000,000 or greater.

Drexel had an earlier revenue sharing agreement with EFP that began in May of 2005 under which Drexel received 75 basis points (75%) of all referred loans. EFP was a non-exclusive preferred lender under the earlier contract. Since 2005, Drexel University has sent over $16 million in loan volume to EFP.

Drexel solicits and corresponds with students from New York, and New York students and their families rely on Drexel's representations about preferred lenders; the New York Attorney General therefore has jurisdiction over Drexel in this matter.

"This investigation is a two-front battle: lenders and schools. We have proceeded against lenders and now we are proceeding against schools. There is no reason for a school not to adopt the Code of Conduct," Cuomo said. "This office has been clear to schools: settle or we will commence litigation. Either way we will get justice for students."

Salve Regina, Pace University, and NYIT agreed to the Attorney General's Code of Conduct, after the Attorney General's investigation that revealed various practices at each university could have potentially created conflicts of interest.

Salve Regina University: Salve Regina University is located in Newport, Rhode Island. The Attorney General's investigation found that during the period of 2005-2006, Salve Regina received over $7,800 pursuant to a form of revenue sharing with EFP, which was one of the Salve Regina's preferred lenders. Between January 2004 and March 2007, certain lenders, some of whom appeared on Salve Regina's preferred lender lists, provided printing costs or services to the university and/or paid for meals and lodging for university employees at loan workshops, conferences, and/or advisory board meetings. Salve Regina agrees to accept the OAG Code of Conduct and will reimburse the affected students $7,839.74.

Pace University: Pace University is in Westchester, New York. The Attorney General's investigation found that Pace hired Sallie Mae to staff financial aid call centers, and the Sallie Mae employees wrongfully identified themselves as Pace University employees. Additionally, a Pace administrator who oversaw student loans and advised Pace to drop the federal direct lending program and enter into contracts with Sallie Mae subsequently went to work for Sallie Mae after leaving Pace. This administrator may have had an inappropriate relationship with Sallie Mae while employed by Pace, Cuomo charged.

New York Institute of Technology: The New York Institute of Technology has three campuses, two on Long Island in Old Westbury, Central Islip, and one in New York City. The Attorney General's investigation found that NYIT accepted payment from certain lenders, some of whom were on NYIT's preferred lender lists, including payments for sponsorships of University events and scholarships. When composing its preferred lender list, NYIT considered whether or not lenders had made such contributions or offered Opportunity Loan funds as a criterion. Additionally, some preferred lenders including Sallie Mae, Citibank, College Loan Corporation and AFC paid for meals and trips to student loan conferences for financial aid officers.

Molloy College: Molloy College is in Rockville Centre, Long Island. The Attorney General's investigation found that Molloy had a revenue sharing agreement with EFP. Molloy received over $1600 from EFP as a result of this arrangement. Molloy has returned this money to EFP and requested that any future revenue due to it under the EFP agreement go towards reducing student loan payments.

California Probe

In the California investigation, Brown is probing Education Finance Partners Inc. of San Francisco and Student Loan Xpress Inc. of San Diego.

"Schools and universities in California must be above reproach, and no further burdens should be visited upon students who are already weighed down by escalating student-debt responsibilities," Brown said.

The Department of Justice is seeking the information to determine whether the lenders made unlawful payments to schools or university personnel.

Brown said he is investigating whether any schools have improperly chosen some lenders in preference to others, and whether unlawful payments have been made to schools from the student lending institutions.

Under the agreement, Sallie Mae agreed to discontinue call centers or other staffing for college financial aid offices, discontinue paying financial aid officers for appearing on advisory boards, and discontinue paying for any trips or travel for any financial aid officer.

Sallie Mae serves almost 10 million borrowers, manages a portfolio of over $142 billion in loans nationwide, and has relationships with over 5600 schools.

"Sallie Mae is the largest student lender in the United Sates. Their adoption of this code of conduct will affect millions of students and thousands of schools around the country, and will help set a new industry standard that all lenders should adopt," Cuomo said.

"With Sallie Mae's $2 million contribution to an education fund, thousands of college bound students will now have more information on how to wisely choose the best student loan for them."

Congress has taken an interest in Cuomo's investigation. "With today's skyrocketing college costs, it is inexcusable for any financial institution to be collecting excess profits at the expense of students and parents," said U.S. Rep. George Miller, the chairman of the House Education and Labor Committee.

"Cuomo's settlement with Sallie Mae demonstrates the value of vigorous oversight, and is an important step towards ensuring that all student lenders abide by the highest ethical standards." Miller said, "The sole purpose of the federal student loan program is to help students pay for college, not to pad corporate profits."

Cuomo's nationwide investigation into the student lending industry has uncovered many questionable conflicts of interest including revenue sharing agreements, university call center staffing by lender employees, gifts and trips from lenders to financial aid directors, and even apparent stock tips to financial aid officers.

Last week, Cuomo announced landmark multi-million dollar settlements with eight universities and Citibank. In 2006, Sallie Mae and Citibank accounted for 22% of the private loans nationwide.

The Student Loan Code of Conduct adopted by Sallie Mae in its settlement with Cuomo includes the following provisions:

1. Ban on Financial Ties. Lenders are prohibited from giving anything of value to any college in exchange for any advantage sought by the lender. This severs any inappropriate financial arrangements between lenders and schools and specifically prohibits "revenue sharing" arrangements.

2. Ban on Payments for Preferred Lender Status. Lenders may not pay or give colleges any financial benefits whatsoever to get on a college's preferred lender list.

3. Gift and Trip Prohibition. Lenders are prohibited from giving college employees anything of more than nominal value. This includes a prohibition on trips for financial aid officers and other college officials paid for by lenders.

4. Advisory Board Rules. Lenders are prohibited from paying college employees anything of value for serving on the advisory boards of the lenders.

5. Call-Center and Staffing Prohibition. Lenders must ensure that employees of lenders never identify themselves to students as employees of the colleges. No employee of a lender may ever work in or providing staffing assistance a college financial aid office.

6. Disclosure of Range of Rates and Defaults. Lenders must disclose to any requesting school the range of rates they charge to students at the school, the number of borrowers at each rate at the school, and the lender's historic default rate at the school. This will ensure that schools will have the information they need to select preferred lenders who are best for students and parents.

7. Loan Resale Disclosure. Lenders shall fully and prominently disclose to students and their parents any agreements they have to sell loans to any other lender.

Cuomo's investigation has revealed that Education Finance Partners has repeatedly paid schools in exchange for steering loans to EFP and for putting EFP on "preferred lender" lists. Approximately 90% of students choose their lenders from their school's preferred lender lists.

Cuomo said his investigation has uncovered that neither the schools nor EFP adequately disclose to students that EFP is paying the schools to be promoted as a "preferred lender." Cuomo's legal action alleges that the relationship and financial arrangements between EFP and the schools constitute a deceptive business practice.

Cuomo also revealed that EFP made its financial kickback arrangements with schools through what are called revenue sharing agreements, which often were based on a tiered system that would give a higher percentage to the schools based on the amount of loans referred.

"EFP aggressively offered schools cash kickbacks in exchange for business," Cuomo said. "This kickback scheme was widespread and took place from coast to coast, at colleges large and small, public and private," Cuomo said. "This lawsuit is just the beginning of an investigation that will show that lenders put market share above fair play.

"A preferred lender ought to mean that the lender is preferred by students for its low rates, not by schools for its kickbacks. With the cost of college rising every day, the last thing students want to hear is that their lender may be muscling aside a more competitive loan package."

Big Bucks

This arrangement resulted in potentially large amounts of money paid by EFP to universities participating in the preferred lender program.

For example, EFP's agreement with Duquesne University gives the school 60 basis points (.6%) of the net value of all referred loans. The agreements are structured to encourage the schools to refer as much business as possible to EFP. For example, EFP's agreement with Boston University provides that BU will receive 25 basis points (.25 percent) of the net value of referred loans of at least $1,000,000 up to $5,000,000; 50 basis points (.5 percent) of value of referred loans between $5,000,000 and $10,000,000; and 75 basis points (.75 percent) of the net value of referred loans over $10,000,000.

Some schools such as Drexel University in Philadelphia received over $100,000 in kickbacks from EFP in a single year.

Under Drexel's agreement with EFP, dated April 1, 2006, Drexel has agreed to make EFP its "sole preferred private loan provider." In return, EFP has agreed that Drexel will receive 75 basis points (.75 percent) of the net value of referred loans between $1 and $24,999,999; and 100 basis point (1 percent) of all loan amounts of $25,000,000 or greater.

Among the schools with which EFP has had such revenue sharing agreements are: Baylor University, Boston University, Clemson University, Drexel University, Duquesne University, Fordham University, Long Island University, Pepperdine University, St. John's University, Texas Christian University, Washington University in St. Louis, and the University of Mississippi. In total, EFP has had such agreements with more than 60 schools across the nation.

EFP engaged further in deceptive marketing practices by using schools' logos, mascots, and names in EFP promotional materials to imply that EFP had the school's official endorsement.

"EFP's marketing practices were clearly intended to imply that the universities had endorsed EFP loan products for individual student borrowers," Cuomo said. "Deceptive marketing is just that and it limits the information available for students to get the best deal in their college loans."

According to the New York State Department of Education, two-thirds of all four year college graduates nationwide now have loan debt, compared with less than one-third of graduates in 1993. In New York State, 59 percent of undergraduates took out loans to finance their college education. The average student graduating from a four-year college in New York owes $17,594 on graduation day.

Cuomo has been leading an ongoing investigation into the $85 billion-per-year student loan industry. In February, he requested information from more than 60 public and private colleges and universities nationwide regarding the standards they use to determine which lending companies are included on their "preferred lender" lists. Financial aid administrators often produce such lists to direct their students toward the lenders that are most preferred by the schools but may not offer the best deals for students and parents.

Getting ready for college? Be careful. There are many scam artists offering "insider information" on scholarships and financial aid that is essentially worthless.

The New York State Consumer Protection Board (CPB) warns that there are private companies charging high fees for services that are generally free to the public.

There are also high-interest loans and scholarship scams being marketed to students and parents as their search for college aid kicks into high gear this month.

"You don't have to spend money in order to find money for college," said Mindy Bockstein, the CPB's acting chairperson and executive director.

"Government agencies, as well as colleges and high schools, are offering many free services this weekend, including orientation programs at high schools and colleges across the state.

"The bottom line is: parents and students need to do their homework," she said.

On Saturday, Feb. 10, many State University of New York (SUNY) campuses will have financial-aid experts available to answer questions about how to apply for financial aid from the state and federal governments.

The following day, high schools and colleges across the country will host financial-aid programs in a nationwide program called "College Goal Sunday."

The key to obtaining grants and low-interest loans from the government is the Free Application for Federal Student Aid, commonly known as the FAFSA.

Although FAFSA is free, parents are lured into paying between $50 and nearly $2,000 to a company that will complete the application on their behalf.

Several websites use names very similar to the FAFSA name in order to lure them away from the government website -- www.fafsa.ed.gov where the FAFSA application is available at no charge.

"Ironically, these private services require consumers to fill out an application that is nearly identical to the FAFSA application," said Bockstein.

Students and parents are also invited to "free" seminars where college consulting firms pressure them into buying services they may not need or have trouble accessing.

Consumers have complained that some companies promise to offer "consulting services" to help a student choose a college. Some parents said these consulting services were not as personalized and specific as the companies described in their sales presentations.

Some of these consulting packages can cost $2,000 or more and consumers have found it difficult to get refunds from some of these companies.

Bockstein also noted that parents should be aware and concerned that these private services may be selling information about their customers. This can result in even more companies contacting them with offers, including some financial aid and government-grant scams.

"Scam artists often lure victims with phony guarantees that they can obtain a government grant or a college scholarship," said the acting Chairperson. "Such 'guarantees' are a tip-off that this is a scam."

Other warning signs include:

• demands that you pay an up-front fee;
• requests for credit card numbers or bank account information;
• claims that a company can offer "exclusive" information;
• promises to give you cash if you first pay a registration fee;
• offers for a lower interest rate if you pay a larger fee in advance; and,
• claims that the company will convert a loan into a grant -- but only if you first pay a fee.

More information on college financing and how to avoid financial-aid scams is available from the U.S. Department of Education.